Crowdfunding Singapore (2020)

What is Crowdfunding?

Searching for information on Crowdfunding in Singapore?

Don’t worry, we got you covered.

This article will provide you with ALL the information you need:

Especially on P2P lending (peer-to-peer)…

…or debt-based crowdfunding.

Let’s get started.

Crowdfunding; or more specifically, P2P lending, is an alternative lending method of raising capital through a large number of individuals, usually via an online platform.

It is interesting to note that even though crowdfunding has been in Singapore for years, many people still associate it with being a relatively new and fresh segment of the finance industry.

In case you are smiling because the above observation seemed sweet – like a 40 year old lady being mistaken for a young woman that has just started her career;  you wouldn’t be smiling for long.

On the contrary, it seems to be a telling indication of an industry that never really took off in Singapore…

Back in time:

Crowdfunding started with the idea of encouraging entrepreneurship, by pairing retail investors with entrepreneurs who had a good business idea.

For the entrepreneur, it provides a platform to spread awareness of their new business venture and raise funds at the same time.

For the investor, the crowdfunding platforms allows them to participate in new business ventures, and at the same time, receive returns in the form of money or gifts.

Being a combination of crowd sourcing and micro financing, P2P lending in Singapore is a great alternative to the traditional approach of obtaining financing through business loans from a bank. It allows for more flexibility, and the opportunity to reach out to a greater audience.

Types of Crowdfunding in Singapore

Just as there are many types of business loans for different businesses in different industries, there is also a variety of crowdfunding types to cater to these differences.

The type that you choose will depend on the nature of your business and the goal that you want to achieve.

Crowdfunding is generally categorized into 4 distinct types:

  1. Donation Crowdfunding – where the general public pool together to raise funds for a person/cause/organisation in need.
  2. Reward Crowdfunding – where investors give to a project or cause, and receives a small gift or token.
  3. Debt Crowdfunding – more commonly known as peer-to-peer lending in Singapore (P2P lending), where retail investors lend money to a business, in return for interest rate earnings of up to 18% p.a.
  4. Equity Crowdfunding – where retail investors purchase the shares of a company in return for profits in the form of dividends or distribution.

It is important to know that all online platforms that deal with unsecured lending in Singapore must obtain the CMS license issued by the Monetary Authority of Singapore (MAS).

In recent years, more and more startups have turned to equity-based crowdfunding in Singapore to raise capital. Investing in a startup through crowdfunding has also become quite popular amongst the retail public.

More than just enabling budding entrepreneurs to raise money to start their business, investors also get the chance to own equity in innovative start up ventures.

These small investments have limited downside and a potentially unlimited upside in the event that the business becomes successful.

However, always good to be cautious. With all the good things that come with it, there is a fair amount risks that can come with crowdfunding, especially when it is debt-based.

If you are going to contribute, be prudent to carry out sufficient due diligence before on both the facilitating platform and the business that you are lending money to.

If you own a business that is seeking to raise capital, ensure that you only work with facilitating institutions that are governed by regulations and have proper licenses.

Benefits of Crowdfunding

As a relatively new concept that only emerged in recent years, it is understandable that many people are still unaware or entirely averse to the idea of raising capital by pooling from a large group of individuals.

While crowdfunding as an alternative lending method in Singapore has not yet been able to disrupt traditional banking in any significant way, it has provided many businesses with greater access to working capital.

Here are a few benefits of crowdfunding that can make it a better option than a traditional SME loan:

  • Greater flexibility to structure a loan that is specifically tailored to the needs of your business.
  • Faster and smoother process.
  • Able to market and spread awareness of your business to participating individuals.

Top 5 P2P Lending Platforms in Singapore

Here is a list of the top 5 crowdfunding platforms in Singapore that facilitate p2p lending:

  1. Minterest
  2. Validus Capital
  3. Funding Societies
  4. MoolahSense
  5. Crowdo

These 5 peer-to-peer lending platforms are the only ones that are able to perpetuate both secured and unsecured lending to SMEs in Singapore.

While the rest of the other p2p lending platforms advertise a variety of financing products, the truth is that, most of them are only willing to facilitate the financing of invoices and/or other asset-backed loans.

P2P Lending Singapore

P2P lending in Singapore enables companies to get access to funds outside of the traditional banking channels.

Individuals who lend to these companies via P2P lending platforms are able to read up on information about the businesses and choose which business they want to lend to.

Donation-based

Unlike P2P lending, recipients of funds raised in a donation-based crowdfunding campaign do not have to repay back the money.

In most cases, campaigns that come under this category are usually initiatives to raise funds for a charity, disaster relief, non-profit organisation or people who are in need.

Reward-based

Made popular by platforms like Kickstarter and Indiegogo, individuals usually contribute small amounts of money to a project that they like, in return for a reward of some kind.

Most individuals who contribute in this category are not doing it because of the reward, but rather, they contribute because they genuinely like a project that they find to be innovative or fascinating and want to support it.

Equity-based

With equity crowdfunding, contributors get to own shares in your company by trading it for capital. As equity shareholders, contributors will get returns in the form of dividends or profit distribution.

A true win-win situation as you get to raise money to start or expand your business, while investors get an opportunity to own equity in a company that they otherwise would not have had a chance to.

At the same time, the campaign also serves as a free marketing tool for you to advertise and spread awareness of your business.