“Banks just aren’t set up to understand small businesses”

From Maija Palmer at Financial Times:

“There is an estimated $2tn gap between SME funding needs and what banks will provide. If there were one overriding theme to pick out in the applications for this year’s Future of Fintech Awards, it was a focus on small business customers. The words “small businesses are poorly served by banks” kept cropping up on submissions. Fintech companies, it would seem, are lining up to fill this gap in the market by providing small companies with everything from lending, foreign exchange to advice. For many founders the idea for their start-up had come from a bad personal experience with small business banking…SMEs are a potential enormous market. Small companies account for 90 per cent of the world’s businesses, according to the SME Finance Forum, a global small business association. They are, indeed, poorly served by banks, says Matt Gamser, head of the forum. Banks tend to provide personalised services for a few high-value customers, or automate services for a mass consumer market.”

In Singapore, research from SPRING Singapore showed that 180,000 small and medium enterprises (SMEs) consists of nearly 99% of the all businesses. In addition to that, they contribute to about half of Singapore’s GDP and employ approximately 70% of the labour force locally. These statistics show that SMEs play a significant role in the development of Singapore’s future and the creation of job opportunities. While they account for a large percentage of the economic market, a gap still lies between small businesses demand for funding and what banks are willing to provide. Banks are more willing to provide personalised services for high net worth clients or automate services for large consumer markets.

Problems that local SMEs face include slow payments, rising costs, currency fluctuations and lack of skilled staff. Having sufficient cash flow as well as the timing of these cash flows are necessary to aid in their concerns. With limited opportunities for bank financing, SMEs are starting to turn towards alternative financing options which includes crowdfunding, peer to peer financing, ICOs and invoice financing. Through these options, SMEs are able to obtain loans much faster, with less paperwork involved. Invoice financing platforms conduct stringent background checks on each invoice and they are graded based on their creditworthiness. Therefore, the speed at which applications are checked are much faster with greater efficiency and customer satisfaction. Continue reading

Why Now Is A Good Time To Invest In P2P Loans

From Patrick Watson at Forbes:

“The new way to be your own bank is as simple as it is ingenious. It’s called peer-to-peer (P2P) lending. Using any of several online platforms, both lenders and borrowers can transact loans directly…With the bank out of the equation, the borrower’s rate drops and the lender’s return goes up. The difference can be significant for both lender and borrower. And P2P can be a great portfolio diversifier if you already have stock or bond investments. Of course, rates go up and down over time, but P2P lending can earn investors a higher yield than most other fixed-income instruments—without higher risks.”

With peer to peer lending bursting into the financial services scene, P2P lenders are growing exponentially, but there is still a long way to go before they gain a significant market share currently dominated by traditional banking. The relative ease of making finance available, coupled with today’s environment of low interest rates and rising inflation makes P2P lending a viable alternative for both lenders and borrowers.

With that said, it is critical for one to understand the potential risks of P2P lending as well: the risk of default as well as liquidity risks. Investing in P2P platforms means that your cash is tied up for the loan term and selling your loans to another investor or withdrawing might not be possible. In order to mitigate default risks, it is crucial for investors to select P2P platforms that suit their risk appetite, understand details of the borrowers as well as to diversify investments. Proper due diligence can also be done to ensure that the platform is financially stable and growing in the healthy direction.

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