How do I select a loan?
By now, you should have $1,000 of undeployed cash on each platform and ready to lend. Login and check the lending platforms for any available loans. Do also check your emails regularly because lending platforms sometimes email investors when there are new loans.
Basic Loan Information
Whenever there is a new loan, do review its key information (shown below). For MoolahSense platform, this information can be found under the Summary and MoolahCore tabs for the particular Campaign. For Capital Match and Funding Societies, this information can be found in their respective loansheets (pdf document).
For beginners, I would suggest choosing a stable and easy-to-understand business. It should also have a reasonable operating history (at least 3 years) and a decent credit rating (i.e. at least DP6-). For example, private education provider (First Media Design by MoolahSense) is a good choice for the beginner investor.
Interest rate is an advanced topic which I will cover in future posts. For now, just focus on the lender’s effective interest rate – this is the rate that you will earn on the money that you lent out. It is typically expressed in annualized terms, i.e. 12 x monthly effective interest rate. All three platforms disclose the lender’s effective interest rate (annualized) as shown below.
Don’t be tempted by higher rates. Loans with higher rates often carry higher risks. Avoid cyclical industries (e.g. construction and oil & gas related) or companies that have a short operating history for now. These loans are more suitable for experienced investors with a higher risk appetite.
Take your time to consider your choices. Even if the loans are funded quickly, don’t be pressured to make a hasty decision. If you have registered with all three platforms, you should have several choices per week.
Once you made your choice, put in the minimum amount ($1000 for MoolahSense and Capital Match; $100 for Funding Societies) and wait for the process to be completed. Within 2-3 days, you should receive an email or platform notification informing you that a loan agreement has been generated and funds have been disbursed.
Congratulations! You have now participated in your first crowdfunding loan. Remember to log into the platform regularly to check on the monthly repayment. If you are eager to lend again, transfer another $1,000 onto the platform and repeat Step 5.
Where do I go from here?
If you are still serious about crowd-lending, I would suggest investing the entire sum of $5,000 across different loans on all the three crowdfunding platforms. This could take up to 1-2 months, but do proceed slowly. A common mistake is to rush into a lending decision for fear of missing out – and I’ve made this mistake several times myself. Remember, once the funding is disbursed to the borrower, you (as a lender) cannot back out. There is no secondary market for such loans. You will have to patiently wait for the entire loan duration (usually 12 months) to get your money back.
Once you are more familiar with crowd-lending, you may want to scale up your loan portfolio and selectively participate in some higher-risk but higher-return loans. I’ll be writing another Intermediate Guide that covers some of the more interesting topics (loan default, portfolio diversification, etc) at a later date. Do watch out for it!
I hope you find this guide useful. Have I missed out any important topics for the beginner investors? Do let me know. As usual, feedback are the most welcome!