How does debt-based crowdfunding work?

To add on to what Enk Loui has said, such P2P lending firms have rather stringent requirements too - not just anyone will be listed on their debt crowdfunding apps. Which leads to a few issues - currently there isn't that many opportunities as I personally would have liked to invest in, since they still have to vet through company books and business model before they can approve such loans. From what I know, funding societies have a really low default rate of less than 1%, meaning you'll most probably get your principal back with the promised interest, albeit perhaps with some late repayments.

But it is defintely a thriving industry in singapore now, with the number of SMEs we have in our economy. If you like, I suggest to go read funding societies' website for moe details on how exactly do they go about determining loan eligibility!

Hi!

Crowdfunding is quite new and only gained traction recently! It is an alternative platform in which firms/companies can have access to debt financing.

Simply put, companies that are not eligble to access debt financing instruments from banks due to regulations/various criteria will utlise platforms like MoolahSense, FundingSocieties, CapitalMatch etc to raise funds - be it for their working capital or for one off payments such as invoice financing.

These platforms will then break the loan down into small chunks - eg: each investor on the platform can only invest up to $100 (actual amount varies) for a $100,000 loan that a company may be keen on getting, effectively diversifying and spreading the risk to many small retail investors.

Retail investors are usually offered a relatively high interest rate for lending money to these companies (~8-14%).