Is crowdfunding suitable for your business? It could be a stellar option in the evolving digital economy, which is also transforming the financial landscape.
By Majella Gomes
Peer-to-peer lending (P2P) enables businesses to seek financial aid from investors through an online platform. The P2P platform operates as an intermediary that matches the needs of a business which needs financial aid (the issuer) with that of an investor looking for ways of increasing investment returns (the investor), through the application of financial technology or FinTech. Here in Malaysia, P2P is regulated by the Securities Commission (SC). “Investors can choose where to put their money, and issuers can declare their risk levels,” explained Er Chiang Chuan, Head of Business Development, B2B Finpal. “The main difference is that approvals are very quick because everything is done online, transparently and without the need for collateral.”
Speaking at the Government Grants & Financing Seminar for SMEs 2017, Er explained that B2B Finpal offers invoice financing, paying invoices of companies which have already chalked up sales but may be experiencing cash flow difficulties because they haven’t been paid yet. B2B Finpal is a subsidiary of B2B Commerce and provides invoice services to large corporations like AEON, for example.
Stressing that P2P is for companies not individuals, he divulged that the SC had so far approved only six P2P players: Ethis Kapital, MP@Y and Fundaztic provide business loan financing; Funded ByMe does equity funding and business loan financing; and Modalku offers business loan and invoice financing. P2P regulations governing who can be a borrower or issuer are strict; disclosure is stringent. “Amounts borrowed by issuers are subject to the closest scrutiny,” he continued. “The proper documents have to be submitted, and issuers who are already availing themselves of crowdfunding facilities will not be allowed to use the P2P platform. Issuers can keep only the amount of the target if it is achieved.” Excess funds from oversubscription, for instance, are returned to investors.
The P2P player is operating within its own ecosystem, in that it already has confirmation of an order and is not financing a start-up. It is already financing an actual transaction. The target market is those firms who need funding, such as SME suppliers who cannot meet their obligations to supply large clients like hypermarkets. “They are often subject to penalty payments when this happens, and the penalty payments can be larger than what they would have to pay B2B Finpal, to take care of the invoice,” he added. Invoice financing is very short-term financing and is not like a loan.
As P2P is a regulated industry, the SC has put in place many measures to prevent fraud and financial mismanagement. These include applying for the SC’s approval to become a P2P platform operator; third-party trustees to manage funds; ceiling limits; default management; and living will, among others.