Are we seeing the first crowdfunding loan default? The rumours are out that a Beauty Saloon (let’s call it X*) has defaulted on their bullet loan on MoolahSense platform. A debt restructuring appears to be underway to try to recover the loaned amount over a further 12 months at a lower rate than initially promised. For lenders, this is not optimal, but at least it is better than getting nothing. For MoolahSense, it is a black eye on its reputation. Default is inevitable in the lending business, but no one wants to be the first.
Could this have been avoided? It is hard to say. X operates in a stable industry and has a decent track record. One potential weakness was its cash management, evidenced by the low cash balances. Another clue was the frequent late payments for a similar loan off Capital Match’s platform. Will Capital Match’s loan be affected? Possibly, although the loans were to different companies under the X brand.
The biggest question is how will regulators react? In theory, crowdfunding platforms match lenders with borrowers and thus do not have any risk associated with any defaults. In practice though, MAS is likely to frown on any platforms found to be reckless in introducing risky loans. Unlike Capital Match and Funding Societies, MoolahSense don’t claim to have a credit role, as an additional check on loans that pass through its platform (See here and here). Maybe it is time to have one.
Note (16/12/2015): An investor pointed out that X under MS is not the first or only default. CM also has two loans with missed payments, although one of it appears to be remedied. More information below.