Some investors emailed me asking me for my opinions about New Union. Why are the repayments so prompt compared to other platforms? Why are the returns much lower? Does it have lower risk? Compared to other “pure” p2p platforms like MoolahSense and others, New Union is harder to understand because of its business model. In my view, it is a platform-cum-lender, somewhat similar to a bank or a fund in certain ways. This will have important implications for investors, especially for their risk assessment. I’ll share my opinions below.
What is New Union?
According to its website, New Union is Singapore’s largest Business Financing Platform where local business seeking short-term financing connect with individuals and businesses seeking short-term investments.
How is New Union different from other p2p platforms?
New Union operates a different business model. In my view, it is both a borrower and a platform.
- It is a borrower because it always pre-funds any loans before trying to find investors to participate in the loan. In the event that there are insufficient investors, New Union’s own capital is put at risk. There are also other loans that New Union lends using its own capital that are not available for investors to participate.
- It is also a platform because it offers investors an indirect participation in certain loans. Unlike in pure p2p platforms like MoolahSense and others, investors in New Union’s loans are not lenders. This is stated clearly in New Union’s Investment Contract.
Does New Union provide secured lending?
Most of the loans available for investors’ participated are on a secured basis. The collaterals can be property, receivables, etc. Sometimes, directors of the borrower do provide personal guarantees. However, it is important to note that the collaterals or personal guarantees are pledged to New Union, and not to the investors. Platform risk should still be an important consideration.
Does New Union provide guarantee on each loan?
Yes. The Participation Agreement states that New Union “unconditionally and irrevocably guarantees the repayment of the Participation Dividends….”
So, are loans on New Union safer for investors?
- Secured loans carry less risk because the collaterals are pledged to the lender. Nonetheless, there’s a small risk that the liquidated collateral value may be insufficient.
- New Union’s guarantee provides a second layer of protection. In other words, if the borrower defaults, New Union will absorb the loss and continue to repay the “participation dividends” to the investors. But it can be difficult to assess whether New Union has sufficient capital to absorb the losses (see next point).
How to assess New Union’s own credit risk?
For the lending business, I normally look at underwriting track record, long-term profitability and capital buffers. Unfortunately, such information are not available. New Union is not a listed company, does not provide its financial statements and do not have a credit rating. Hence, investors will have to make an educated guess on New Union’s own credit risk.
For me, I met New Union’s staffs several times to understand their internal processes and I am comfortable with their approach. I also like that they are risking their own capital (hence they are likely to be more careful with lending) and their recent appointment of an escrow agent to give investors additional protection. (Full disclosure: I have participated in New Union’s loans.)
What about the lower returns?
Yes, returns are lower compared to the other p2p platforms. But New Union operates a different business model – secured lending and guarantees provided. Lower risk, lower returns.
In my view, New Union is a platform-cum-lender. It does secured lending and offers guarantees to investors who participates indirectly on New Union’s loans. Although the returns are lower, the risks seems to be lower – but it is difficult to assess New Union’s own credit risk. Investors need to make their own educated guess on New Union’s ability to absorb loan losses. I have met the staffs several time and is generally comfortable with their approach.
Disclaimer: this is not an endorsement or recommendation; please do your own due diligence.