Just Launched: Secured Lending Solutions

Business September 19th, 2017
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As an investor, if you are looking for better yields coupled with lower risk, secured lending might just be the solution for you. These solutions are collateral-backed and typically carry a lower risk. Currently, there are about three marketplace platforms in Singapore which offer secured peer to peer loans. Other similar platforms offer invoice financing, as a form of asset-backed financing.

What is Secured Lending?
Secured lending involves a borrower pledging some asset as collateral for a loan, which is typically a percentage of the valuation of the asset. This allows the lender to hold the title to the collateral until the loan, including all interest and fees, has been fully paid.

Should the value of the collateral drop below a certain percentage of the loan, lenders can request the borrower to top up the collateral by pledging more assets. Lenders can also liquidate this collateral to recover money owed if the borrower has difficulty in repayments. While selling these assets, if there is any shortfall in the funds raised, the borrower is required to pay the remaining amount.

The investment landscape today comprises a wide range of securities choices such as bonds, equities, futures, options, real estate, and alternative investments. Some options to consider if you are exploring secured lending are – charge over assets, charge over cash or charge over receivables.

What is Charge Over Receivables?
When a company provides services to its clients and sends them an invoice, the payment owed is called accounts receivables (AR). Some companies use these invoices to get financing based on the incoming monies. This is called Invoice Financing.

For a secured loan, however, when you lend to an SME via our platform, you hold the charge on the SME’s account receivables until you receive your invested amount and your earnings. If the borrowing SME’s client does not pay the invoices, the SME is then required to make repayment to you. The borrower stands to lose ownership of the accounts receivables if loan repayments are not made as per agreement terms.

An Edge for SMEs
For SMEs, marketplace lending platforms allow access to fast loans for working capital. If your company has maxed out on bank credit line, for example, this is an attractive funding source for bypassing risk-averse banks to fund your operational expenses.

After the loan has been paid in full, you can use the same accounts receivables as collateral for a new loan. SMEs can assign new accounts receivables as they are generated to obtain new loans. Hence, the more sales an SME can generate, the more cash-flow from loans is available for financing business operations. This helps SMEs to capitalise on growth opportunities to expand rapidly.

Since any loan arrangement is made directly between you and the lender, your clients would not know that their outstanding accounts have been borrowed against. These loans typically do not require any monthly principal payment. Secured lending also allows the borrowers to get approval for higher loan limits which are not easily approved by banks. A more efficient accounts department can result from using accounts receivables as collaterals, as SMEs need to be thorough in their reporting.

Boon for Investors
For the same yield, most traditional fixed income financial products offered by banks would involve a longer tenure – usually five years.

To sum up, the main draw of marketplace lending platforms is the short-term commitment with low minimum capital outlay for investors. Yields offered by marketplace lending platforms are typically higher than regular fixed income instruments offered by banks. However, yields offered for secured loans are lower than for unsecured loans, reflecting the lower risk premium. Understanding concerns of investors with a lower risk profile, we would recommend secured marketplace lending. This offers lower risk as these collateral-backed loans have collaterals as added security against loan default which helps with capital preservation.

 


Does your business need a loan?
Our dedicated Business Services team has assisted over 200 companies from a variety of industries secure loans. Whether you need to expand your business or require a working capital, the MoolahSense platform is here to help you reach your business goals. Register online and get access to over a growing investor pool. For more information, call us on +65 6871 8780 or email us at business@moolahsense.com.

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