Techblog
More loan options for SMEs as DBS partners with P2P lending firms
Singapore's first collaboration between a major bank and a P2P lending firm provides more options for small businesses looking to secure funding. Here is what businesses owners need to know about this new funding source.
In April, DBS Bank announced cross-referral agreements with peer-to-peer (P2P) lending platforms Funding Societies and MoolahSense to expand funding sources for small businesses.
It was welcome news. Access to finance has always been one of the biggest challenges for small to medium-sized enterprises (SMEs), which only became greater after the financial crisis – conditions have yet to fully recover, according to the OECD.
What drove Singapore’s largest bank to team up with online lenders? Simply put, there’s a significant need for new funding sources. As the OECD pointed out, SMEs are over-reliant on banks.
Partnerships between banks and alternative lenders are already common in other markets. The Royal Bank of Scotland and Santander UK are among several UK banks that have struck deals with P2P lending platforms, like Funding Circle.
Now Singapore appears to have caught the collaboration trend, small businesses can expect to see more deals between banks and online lenders. We look at what this new funding source offers small businesses.
More pathways to funding
Under the pilot partnership, DBS refers businesses it is unable to finance to Funding Societies and MoolahSense, while the P2P lending platforms refer borrowers that complete two successful fundraisings to DBS for commercial loans and other financial solutions. You must consent in advance if you want your information shared.
For small businesses, the partnership provides more pathways to funding. Joyce Tee, group head of SME banking at DBS, called it “a good example of how traditional and alternative finance providers can work together to support the funding needs of small businesses”. It will help SMEs gain access to capital at all phases of their growth, according to Funding Societies co-founder Kelvin Teo.
Benefits of P2P lending
What exactly is P2P lending? It’s a method of debt financing that enables borrowing without banks. It’s similar to crowdfunding, where people donate money to support ventures, except with P2P lending, money is loaned as an investment – eventually you need to pay it back.
The key benefit of P2P lending is it’s faster and easier to secure. Typically, documents are processed online. After approval, investors compete to fund loans and cash comes within three days of funding. Interest rates range from 9 to 24 percent.
P2P lending gained strength after the financial crisis drained the global credit pool and it's increasingly popular in Singapore – at least five platforms launched last year and the biggest three, including MoolahSense and Funding Societies, reportedly raised more than $10 million for SMEs.
What do MoolahSense and Funding Society offer?
A pioneer P2P player, MoolahSense caters to SMEs seeking short-term business loans, starting from S$100,000. You need a minimum annual turnover of S$100,000 to access funding and can choose your own financing structure.
On the other hand, Funding Society offers loans to new and small SMEs. You can apply for loans up to $200,000 and cash is disbursed within 14 days of approval.
Banks expanding options
If these options aren’t suitable for your business, it’s a good time to shop around. Singapore’s banks are competing to increase their share of SME loans by offering new financing solutions.
Before the P2P collaboration DBS was expanding SME offerings, including extending bridging loans to those applying for capability grants from SPRING Singapore. UOB threw its weight behind technology startups, offering S$685 million in venture debt. And Maybank Singapore recently launched bundled business and working capital loans, aiming to grow its SME loan book by 40 percent. Maybank's financial services head Choong Wai Hong said the fact SMEs still contribute over half of Singapore’s gross domestic product indicates they can thrive, so long as they have "enough resources to grow”.
Singapore's first cross-referral agreements between a major bank and online lenders means more funding options for small businesses. Business owners can expect to see more such deals announced as the collaboration trend takes hold. It's a good time to consider how these funding options can enhance your debt mix. The key takeaways for SMEs from the cross-referral deal between DBS and P2P lending platforms should be that:
- P2P funding is faster and easier to secure
- MoolahSense loans to larger SMEs
- Funding Society finances new and small businesses
- Banks are expanding SME solutions for business owners to explore