Thursday, March 3, 2016

The Opportunity To Invest In SMEs in Singapore

Did you know that we can actually invest in SMEs (small-to-medium enterprises) in Singapore? This allows individual investors to earn attractive returns while supporting the growth of local businesses. We can invest in SMEs through debt-based crowdfunding platforms. This is where SMEs can issue bonds and everyday investors can buy the bonds and get returns on their investments.

Here's an example of a campaign that local crowdfunding platform, MoolahSense, had previously:

This was the first campaign listed under MoolahSense platform. It has paid out successfully to all investors at a rate of 9.9%. The target amount of the company was initially only $100,000 but due to popular demand, offers went up as high as $207,000.

Company: SMATHS

Smaths Consulting Pte Ltd is a boutique education centre that tailors solutions and learning needs in Mathematics, Physics, Chemistry, Biology and Economics, with additional activity streams in adult and continuing education.

They have four upmarket, mixed use education centres by end of 2014, targeting affluent customers who are quality sensitive, staffed by the best qualified, most motivated tutors in the business.

Programmes are free to try, backed up by money-back and results guarantees.


History:
  • Founded 2010, first learning centre opened 2011
  • Second centre opened 2011
  • Third centre 2013
  • Fourth centre (and our second in Bukit Timah) by end of 2014
  • Projected ten centres by end of 2015

Issuer Summary:
  • Date of Listing: November 5, 2014
  • Amount:S$100,000
  • Tenor:12 months
  • Repayment Type:Equal Instalment
  • Repayment Term:Monthly
  • Target Interest Rate:18.00% p.a.
  • Purpose:Business Expansion / Growth Capital

Use of funds:
  • Development of additional education hubs during first quarter of 2015
  • This will increase the usable space for learners and expand the number of educators available
  • Will allow us to continue to grow the range of subjects on offer
  • Expected to form a base to increase Smaths revenues substantially and free cash flows by over 100% within one year
Before investing, it is prudent to do our own due diligence to know the financial health of the company. For investment like this, which is similar to bond investing, there is always risk where the company goes bankrupt and default on their payments. In the case of SME investment, the bonds will have guarantors. For SMATHS's case, the guarantor of the bond is the Group Chief Executive of the company itself. 

Under Moolahsense platform, it has a section called MoolahCore, which shows the financial strength of the company. Here's a screenshot of it:

Click to enlarge

Under this section, you will see the turnover of the company, profitability, current ratio, debt/equity ratio, interest coverage ratio, cash flow from operations and the average cash balance of the company.

You can also ask any questions before investing, through an internal forum – MoolahPost. Moolahsense also organises info sessions for investors to meet the business owners personally for you to understand more before investing.

Investing in SMEs have its risk and thus the returns are higher than the average retail bonds out there. Investing in SMEs through Moolahsense allows you to reap an average of 11-12% p.a. on your investment. Most notes are only for 1 year period with some less than a year.

I have an account with Moolahsense and am looking out to invest part of my money into SMEs which I think is worth investing. You can check out their website and sign up for a free account to try out their crowdlending platform. Who knows you may just find a good company to invest in and at the same time get good returns on your money.

For local SMEs owners, this could be an interesting alternative financing option as well.

Click here to visit MoolahSense Website.

This article is written in collaboration with Moolahsense. All ideas portrayed are independent by SG Young Investment.

11 comments:

  1. Beware of bad debt. I have an account with one of these local crowdlending platforms (not MoolahSense, but similar) and invested $5000 in around 7 separate loans each (I rolled over some of the money I got back as interest and capital repayments). Of these, 2 have repaid their loans, 1 company has folded (we found out later that the director had taken large loans from other investors, which they didn't reveal, and now he is MIA in Hong Kong or China), 1 is still making repayments, and the rest are in arrears (most have missed their scheduled repayments by about a month).

    Permanent loss of capital is a very real threat here.

    ReplyDelete
    Replies
    1. Hi J,

      Yes permanent loss of capital is a very real threat investing in sme. When we invest, we must be prepared for losses. I have met up seperately with the people from moolahsense and i was told they actually do scrutinise the companies they allow on their platforms by talking to their management and also visiting their offices. For failure of repayments, they do engage external debt collection companies to recover the payments and also try to negotiate with the management at least to pay back the initial capital. Hope this clarifies.

      Delete
    2. Yep, I think it's important to temper such posts with a warning. I'm okay even if I lose all the money I put in these loans because I didn't invest a large amount, and was disciplined enough to restrict myself to the minimum investable amount for each loan, but I've seen some people invest 10-20k in ONE loan. I hope they are rich and that's money they can afford to lose.

      BTW, regarding the company I mentioned that folded, their loan was assessed to be quite safe (<0.5% risk of default), but that was because the management purposely concealed information. If management are fraudsters and disappear there really is very little that can be done. In this case we sought legal advice but the directors didn't have any assets in Singapore and no one knew where they were so they couldn't be sued in court either.

      Delete
    3. Hi J,

      Thanks for the reminder. It is indeed important to know that investing in SMEs have its risk.

      I agree that if the management are fraudsters and they decide to conceal information, then there is nothing we can really do about it. Moolahsense platform have constant reminder to investors that there is always a risk in investing in SMEs. They don't want people to invest too much and end up losing a lot also.

      Delete
  2. Hi SG Young Investment,

    That's a good post on MoolahSense. I had no idea we were able to invest in SMEs in Singapore. Will have a look at the website. Thanks!

    Cheers,
    TFS

    ReplyDelete
    Replies
    1. Hi TFS,

      Sure! Feel free to visit and explore their website. I think its a good opportunity if we spot a good one.

      Delete
  3. Looks like this is not without risks.

    http://www.businesstimes.com.sg/banking-finance/singapore-p2p-online-lending-sector-may-see-first-loan-default

    ReplyDelete
    Replies
    1. Hi EH,

      Yes there will always be risk in investing. If we're not comfortable, we shouldn't invest in it. Risk management is always important.

      Delete
  4. Currently there are no products in the banking system that can provide a non-collateral term loan for $2,000,000 from a single source.

    There are business term loans which usually range from $100-500k and their interests would be about 9-11% p.a.

    Diversification is the key. No banks can afford to give a line of this quantum to a borrower. Crowdlending on the other hand has this diversification worked out in the form of small amounts ranging from $1,000 from a pool of investors.

    ReplyDelete
    Replies
    1. Hi,

      Thanks for this info. Appreciate a lot for your sharing :)

      Delete
  5. Risk free:
    Fixed deposits
    SG Savings Bond

    ReplyDelete