Alternative LENDING to help business lower borrowing costs
We held our first public seminar on Thursday evening, 20 Mar 2014. The seminar was entitled “Alternative Lending to help business lower borrowing costs”.
The information session had a good turnout of 30 guests. Lawrence Yong and Bill Ang were the featured speakers.
Bill started the sharing with an inspirational story of how he started out building his Virtual Office business. He recalled how he had been shut out by what was deemed as Singapore’s friendliest bank at the time for a bank loan. Bill credited his supportive Dad who sold off his stocks at a loss to set his business off the ground. Many in the audience were business owners and resonated with the challenges to access bank loans at a reasonable cost. Many also resonate with the LOW (or more precisely 0.125%p.a. as a participant in the audience recounted) interest rate that banks pay on their deposit.
The rest of the session was followed by a presentation by Lawrence, making a case for P2P lending or Crowd-lending in Singapore. P2P lending already had a validated precedence in other parts of the world. Testimonies from borrowers and lenders were shared, demonstrating the very real possibility of WIN-WIN outcomes for both borrowers and investors.
A lively question and answer session ensued, mostly with questions about the workings of such platforms, such as registration and loan listing criteria, how the auction mechanism works in determining the final interest rates and what tenors or quantum of loans can be requested.
There were also a few questions raised on whether there were any security to the loans. In response, Lawrence explained that all loans on the platform were unsecured. Directors or partners of the borrowing entity can choose to provide personal guarantees to provide additional comfort to prospective lenders.
Queries were also raised on what happens if the borrower is late. In such case, the platform will employ a 3-staged process to manage late payments. In the 1st stage, the platform will send notices and reminders to the borrower. All communication will be logged and published to all the investors of the loan. In the 2nd stage, the platform may activate the services of professional 3rd party debt collectors. The last stage would be a default stage. In such instances, the platform will take the lead to bring lenders together and propose to them various possible solutions, laying down the costs and benefits. Lenders then determine which course of action to proceed with a quorum.
Putting things into perspective, investing in business loans are definitely not without risks. Investors who choose to lend would have to consider their risk tolerances and only do so after evaluating the information made available on the platform by each borrower. Lenders retain full control of their individual decision to invest, the same way as they do in deciding whether to buy a stock listed on the exchange. One major distinction is of course, a loan contract is a legal obligation by the borrower. Such claims are prioritized over shareholders, who do not have any claims, in case of bankruptcy.
We hope that the participants found the session informative. Thank you all for the enthusiastic encouragement!