I first got to know about the idea of crowdfunding a few years ago after stumbling on this article at Mr Money Mustache (MMM). Looking at the ~10% annualised returns MMM received from participating in lending campaigns with The Lending Club, it did get me interested to find out more.
Especially about how they work and their value proposition.
My Understanding Of Debt-Based Crowdfunding
Basically, with the improvement of technology, many monopolies or oligopolies are getting disrupted. We have already seen how Grabtaxi and Uber are providing us with alternatives to taxi rides and crowdfunding companies are doing the same thing.
Traditionally, banks receive deposits from savers and provide loans to individuals or businesses at higher rates. Looking at how big banks have become, money lending can indeed be very lucrative. As they become bigger, the margins or spread have to be higher to support and maintain profits.
In this low-interest climate, depositors are receiving negligible interests from their deposits. At the same time, if a borrower is unable to obtain a bank loan, the alternative is to approach a private money lender with significantly higher rates or even a loanshark.
And I guess this is where crowdfunding companies come in. Largely operating as middlemen marrying potential lenders with potential borrowers, they can take a smaller slice of the spread since they are more efficient, nimble and asset-light. This means that lenders can have a higher return and borrowers can borrow at potentially lower rates.
Attitude Towards Crowdfunding
As with something new, there is always an element of skepticism. After all, many stock market investors are struggling to achieve a 10% annualised return. At least, I know I am. :p
It’s also inevitable that most of us are likely to dismiss crowdfunding as a tool to grow our money when we have very little knowledge of how it works. Hands up if you already knew everything I have said so far?
A Crowdfunding Guide
Therefore, BIGScribe has actually put together a resource to help you understand crowdfunding better.
Besides inviting 4 companies in Singapore to share their perspectives on crowdfunding, BIGScribe actually managed to interview 2 bloggers, Jun from Let’s Crowd Smarter and Chris Ng from Growing your Tree of Prosperity. They have actually participated in a few lending campaigns and their experiences would be a useful read if you are interested in becoming a lender.
The guide will help you to learn:
- Different types of Crowdfunding
- Most popular type of Crowdfunding in Singapore
- Potential Risks of Crowdfunding, and how you can minimise your exposure to them
- 7 things to watch out for when you participate in Crowdfunding
- How you can take part in Crowdfunding in Singapore
- Honest and unbiased sharing from 2 experienced Singapore Crowdfunders: how they manage their risks, how they select potentially safe and successful projects, and many more bits of wisdom.
And yes, this guide is actually FREE. Just click on this link to have it sent to your email. It’s time to take a closer look at crowdfunding.
Make a conscious and educated choice as to whether you want participate in this new form of investment.