I recently took a closer look at Funding Societies, a newly launched crowd-funding lending-based platform. It is a late-comer to the scene, after New Union, MoolahSense and Capital Match. However, it is catching up really fast.
What I like about Funding Societies:
- Use of Trustee to reduce counterparty risks for investors (a major plus!)
- User friendly interface and good customer service
- Low minimum investment ($100 only)
What I dislike:
- Proprietary credit scores (difficult to gauge whether it is better/worse than DP’s)
- Lending rate reported as flat rate (difficult to compare)
- Lack of disclosure about fees charged to borrowers.
|MoolahSense||Capital Match||Funding Societies|
|Loan fulfilment||Reverse auction process.||First come first serve||First come first serve|
|Lender’s Rate of Return (annualized effective rate)||Determined during the reverse auction, usually less than 18%||Usually 20-24%||Usually 20-24% (re-calculated from flat rate).|
|Minimum loan amount||$1000||$1000||$100|
|Risk Assessment||Uses DP Credit Scores.
Very limited disclosure of financial information
|Uses DP Credit Scores.
Provides a brief risk assessment, basic financial information and projections.
|Proprietary credit score
Provides a brief risk assessment and company financials.
|Access to Borrowers||Lenders able to meet borrowers. Online forum.||No access.||No access.|
|Platform Fees (all-in)||3% fee paid by borrower. No fees paid by lenders.||Estimated 5-6% from both borrowers and lenders. Fees spread across repayments.||Estimated 5-6% from both borrowers and lenders.|
|Key Strengths||Access to borrowers
|Platform fees aligned to lenders||Lower c/p risk with Trustee
Low minimum loan amount
|Weakness||Lower rate of return||No access to borrowers||No access to borrowers
Proprietary credit score
- MoolahSense is probably the easiest platform to get started to crowdfunding. You get to meet the borrowers (i.e. the companies) and understand their business needs. Nothing beats face-to-face Q&A. But expect lower returns.
- If you are comfortable analyzing loans purely on paper, Capital Match and Funding Societies are two choices you can consider. Both have their strengths.
- Funding Societies probably stands out more than Capital Match, because of its low minimum loan size and lower counterparty risk.
Disclaimer: The author is not affiliated with crowdfunding platform companies and borrowing companies. However, he may be an investor in crowdfunding campaigns. Information provided may are obtained from external sources and may contain views by the author. Crowdfunding as investing may not be suitable for everyone. No financial advice or recommendation is provided. Caveat Emptor.