P2P lending SME Debt Investment

An Unbiased Review : Funding Societies SME Debt Investment

If you’re looking for a new investment opportunity, perhaps you’ve heard of Funding Societies SME Debt Investment. This is an investment offered under peer-to-peer (P2P) financing.

Investing in a P2P investment product like SME Debt Investment means you are putting your money into a pool of individual lenders to allow businesses to borrow from that pool. In case you are wondering, this form of financing that connects entrepreneurs and small businesses is licensed and regulated by the Securities Commission of Malaysia (SC).

Among the P2P investment products in the market, SME Debt Investment is a popular choice when it comes to business term financing.

So in this article, we’re going to discuss all about this investment product, so you can make an informed decision if P2P investing is right for you.

Let’s get to it.

What is Funding Societies SME Debt Investment?

But before we get into the details of this investment opportunity, the first question we need to answer is what exactly is SME Debt Investment?

According to Funding Societies FAQs, SME Debt Investment is an alternative investment opportunity for investors with returns comparable to most traditional instruments.

This means your investment goes towards helping SMEs secure financing for growth while at the same time offers you, the investor, the opportunity to get investment returns.

Key features of SME Debt Investment

Return of investmentUp to 14% p.a
Investment period1-24 months
Minimum investment amountRM100

According to SME Debt Investment’s page, the return of investment that you can get from this investment  is up to 14% p.a., which makes it a very attractive investment option for people who are looking for an investment opportunity with the potential of higher returns.

Potential returns

In general, returns on investment with P2P lending can range from 10% to 18% based on the data from registered providers in Malaysia.

A potential return of investment up to 14% comes in on the higher side of the range.  Of course, a potential for double-digit investment returns is especially high if you compare it to other more traditional forms of investment.

Although this does come with the caveat that your returns are dependent on the SMEs in question staying in business. If they fail to repay their debt to Funding Societies, then you stand the chance of losing money on the investment.

Note: P2P investments are high-risk as businesses who apply to lend money on P2P platforms are likely to be startups and may not be well-established with lower credit rating. This leads to a higher risk of the borrower  defaulting on their loan.

Currently SME Debt Investment is offering guaranteed investments with returns from 4% p.a.

Investment period

Any investor worth their salt will say that typically, investing is a long term game. As the popular saying goes, ‘it’s a marathon, not a sprint’.

However, when it comes to P2P financing, the shorter investment term is a key feature. They typically offer short lock-in periods to allow for higher frequency and greater liquidity. You’ll generally start receiving monthly repayments a month or two after your initial investment, which is great if you like consistent returns on a monthly basis.

SME Debt Investment currently offers an investment period of up to 24 months. Although this model with the short investing period might not be attractive to long term investors, it will be suitable for those with a shorter investment horizon and can stomach the higher risk involved.

Low barrier to entry

Another reason why the SME Debt Investment is a good option for investors who are looking for alternative investment opportunities is the fact that SME Debt Investment is a very accessible option for first time investors, as the minimum investment amount is just RM100.

On the other end of the scale, the SC recommends individual investors to limit their investment exposure in a P2P platform to RM50,000 at any one time to manage their risk exposure.

Other features

Auto investment bot – If you prefer to have your investment automated, Funding Societies has you covered with their Auto invest bot, which will help you automatically make your investment for you.

All you have to do is set your investment preferences, and the bot will do the hard work for you. The bot also comes with a technology called Max Issuer exposure, meaning that the bot will help diversify your investment as you can limit the amount of exposure you give to one single issuer.

Quality of life features – SME Debt Investment also comes with a myriad of features to make the investment process seamless for the investors, such as the ability to e-sign your contract and a mobile app where you can make and monitor your investment.

What we like

High potential returns – With SME Debt investment, you can potentially enjoy a return of 14% p.a.

Auto invest bot – Easy investing process as you can set your preferences on this bot and it will do all the investing for you.

Low barrier to entry – With a minimum investment amount of RM100, SME Debt Investment is a perfect alternative investment for those who are looking to get into the P2P investment area without having to come up with a big sum of money to get started.

Things to consider

Short investment period – An investment period of only 1-24 months can have a place in your investment portfolio but it should not form the main bulk of your investments. If you are looking for  long term investments,  this investment opportunity might not be for you.

Limited portfolio choices – As discussed earlier, SME Debt Investment only allows you to invest in SMEs that are applying for funding from Funding Societies, which means that your options are fairly limited.

High risk investments –  P2P financing connects mainly entrepreneurs and small or less established businesses with a pool of individual lenders, which can lead to higher risk. As mentioned above, your returns on SME Debt Investment comes from the interest paid by these lenders as they make monthly payments on their funding. This also means that if the SME you choose to invest in defaults on their payments, you won’t be making any returns as well. So some prudent research might be needed before you choose to invest in any SMEs.

Conclusion

With a high potential of returns and a seamless investor experience, the SME Debt Investment can be a good place to get started in P2P investment for investors who want to try a form of alternative investments which might help them gain a new source of passive income.

However, new investors will need to be aware of the higher risks that come with P2P investments as the lenders are businesses which may not be well-established and may already have a lower credit rating or unable to qualify for regular bank financing. You also need to be prepared to manage the shorter investing period and limited choices of portfolio.

If you want to try out SME Debt Investment, you can apply right here.

Read more: What You Need To Know About P2P Lending In Malaysia

 

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