facebookHow do I determine which company is safe to invest in when it come to P2P lending? - Seedly

Anonymous

18 Apr 2019

āˆ™

General Investing

How do I determine which company is safe to invest in when it come to P2P lending?

Discussion (3)

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Getty Goh

07 Mar 2019

Co-Founder & Exec Chairman at Coassets Ltd

Hey there,

Iā€™m Getty and Iā€™m the CEO of CoAssets - an ASX listed fintech company that offers online funding.

You have asked a very good question and I would like to share some ā€œcontrarianā€œ views for your consideration šŸ˜…šŸ˜….

As a platform operator, I have seen a variety of deals - some good, some bad - thus I would advocate investors to take a more conservative view when it comes to accessing deals. What do I mean...

  1. First, I would take the companyā€™s (i.e. Borrower) financials with a pinch of salt. Why? This is because companies that have less than S$10mil rev, less than S$10mil assets or less than 50 full-time employees do NOT need to be audited under the Companies (Amendment) Act 2014. For those companies, it means that their financials have not been verified and investors will simply be taking the borrowersā€™ words at face value. This may also mean that the ratios which some of the P2P platforms come up with, especially if those ratios solely rely on the unaudited financials, may not accurately reflect the financial health of the companies.
  1. Understand why those companies are raising funds through a P2P platform? If you think about it, P2P platforms arenā€™t always the first choice for borrowers. More often than not, given the high cost of funds (of between 12% and 20%) many borrowers would prefer to go to the banks first and see P2P as lenders of ā€œlast resortā€. Thus, if a company is trying to raise funds for something as general as ā€œworking capitalā€, it may suggest that the company has exhausted most (or all) of its funding options.
    What generally makes sense (to me) is if the funding is for a specific project by an established SME or a listed company. To give you an example, even big property developers like CDL, CapitaLand, etc. takes project funding. Hence, if there is a specific use for the funds, it may be a better proposition for investors.
  1. Are there any collateral for the loan? The type of deals that makes the most sense to me are those that offer some form of security/collateral. Admittedly, these are not as ā€œfashionableā€ as the micro-financing type deals that most P2P platforms typically serve and may not be as easy to find. However, when it comes to your money, would you rather it be secure or ā€œfashionableā€.

Naturally, this list is not exhaustive and there could be many other factors to look at. I am also naturally affected by my own biases; nonetheless, I hope these will give you a different perspective to chew on when you want to invest in your next P2P deal. Good luck!! šŸ‘šŸ‘

Isaac Chan

06 Mar 2019

Business at NUS

Building on Enk Loui's point, some of the investment fact sheets on the P2P sites should have calculated the different ratios for you already!

You can supplement what they give you with other coverage, leverage and liquidity ratios that you can find online. However, you would need to understand what goes behind the ratios to really have a better grasp at it and what it means for the business.

Alternatively, some p2p sites, like Minterest, do have some form of ratings on how risky the borrowers are. You can also rely on these ratings as some form of bench mark about how much risk you want to take on.

Some of the investor factsheets also have the borrower's background and "story" to help you to understand more about the business model. I feel that it would be more important for you to understand the model and whether it is sustainable too!

Hello there,

Here are some financial ratios in which you can utilise to help you ascertain if the ...

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