By using big data and advanced analytics to bring together investors and borrowers, peer-to-peer (P2P) lending platforms have heralded a new era of Fintech, where collaborative funding is able to help small businesses in their growth and development.
If you own a small, growing enterprise, getting funding from your peers through P2P lending can be a great substitute for bank loans. If you are an investor, P2P lending can be a great way to earn returns while helping out SMEs.
While a lot of articles talk about the benefits of P2P lending for SMEs, there are also many advantages of being a P2P investor. Read on to find out more:
Here are 5 reasons investors should consider P2P lending
1. Handsome return on investment
The returns in P2P lending depend entirely on the risk profile of various loans. The relation between risk and returns makes it easy for investors to choose where to put funds based on their risk appetite. Yet keeping all the factors in mind, a high return rate hovering around 10% in today’s market is very attractive for any investor.
2. Spreading risk
With the rise of P2P lending, you get another opportunity to diversify your investments so that the overall portfolio is diversified. Moreover, you can also decrease risks by investing in funds that have a safer credit rating. You can also reap the benefits of diversification within the P2P lending model itself.
For instance, by financing 4 people with SGD 100 each, you can spread out the risk that your SGD 400 fund will be defaulted on and protect your rate of returns.
3. Steady source of income
In order to maintain an efficient cash flow, SMEs need periodic cash or cash equivalent injections from P2P lenders. Similarly, SMEs will repay funds to P2P lenders in monthly instalments in order to manage their cash flow.
The benefit for investors here, is that P2P lending allows you to get monthly repayments. This is not always the case with stocks and bonds, which usually pay dividends or income every quarter. Seen this way, investing in P2P lending in one strategy to receive passive income monthly.
4. Low homework requirement
While doing research and risk assessment for your investments is extremely important, the classification of funds according to the risk-returns relation in P2P lending helps you get a broad picture of each loan’s risk profile without having to spend a lot of time and effort on it. The report prepared by P2P lending operators about the borrower’s health also helps you minimize your work.
5. Aiding in SME growth
The concept of P2P lending gained prominence with the rise of social funding, which helps individuals and businesses get funds from the general public. Borrowers on Singapore P2P platforms are usually small businesses and SMEs, who need funds to aid in their development. By investing in them, you can help them expand and be a part of their success!
This article was contributed by Funding Societies.
Note: Nothing in this article should be construed as, constitute or form a recommendation, financial advice, or an offer, invitation or solicitation from Funding Societies Pte. Ltd. to buy or subscribe for any securities and/or investment products. The content and materials made available are for informational purposes only and should not be relied upon without obtaining the necessary independent financial or other advice in connection therewith before making an investment or other decision as may be appropriate.