Crowdfunding scene on a roll as big firms jump on bandwagon

DBS Bank has signed cross-referral agreements with two peer-to-peer (P2P) lending platforms to expand funding sources to small businesses.
DBS Bank has signed cross-referral agreements with two peer-to-peer (P2P) lending platforms to expand funding sources to small businesses. PHOTO: REUTERS

Retailer of Apple products EpiCentre first listed firm to have raised funds on platform

More mainstream companies want in on the burgeoning crowdfunding scene - with even a local banking stalwart joining forces with some of these online platforms.

DBS Bank said on Tuesday that it has signed cross-referral agreements with two peer-to-peer (P2P) lending platforms to expand funding sources to small businesses.

This comes as a growing number of listed companies or subsidiaries of listed entities look at raising capital through online crowdfunding platforms as well, industry start-ups told The Straits Times.

EpiCentre, a unit of the Catalist- listed EpiCentre Holdings, has already made its foray into the space.

The retailer of Apple products rolled out two fund-raising campaigns on MoolahSense on March 14, raising a combined $1 million in 26 hours for stock inventory purchases. It launched a third campaign three days later for $500,000, which was fully funded in about a week.

All three tranches are for a tenure of 12 months, with an annual interest rate of 13.5 per cent.

MoolahSense chief executive Lawrence Yong said EpiCentre is the first listed company to have raised funds on the crowdfunding platform.

He added that MoolahSense is also in talks with a few other listed firms looking to finance their capital needs through crowdfunding.

"What we offer is a short-term financing solution," said Mr Yong.

"Sometimes, in business, you don't have time to wait - if the opportunity is there, you have to grab it. So it's important that companies have this quick, flexible access to capital, which can give them a competitive edge."

He also noted that P2P lending allows companies to diversify their sources of funding in a way that involves less time and money compared with issuing bonds or filing for an initial public offering.

Funding Societies is similarly seeing more interest from listed firms, noted Mr Kelvin Teo, co-founder and director of the platform.

But he said it has not launched any such campaigns so far as these companies, usually well-served by banks, tend to ask for bigger loans, which spells higher risk for the platform in terms of the default rate.

"We do evaluate and consider these companies, but we need to be more stringent in credit assessment," said Mr Teo.

Associate Professor Sarah Cheah of the National University of Singapore Business School believes the slowing economy and, in turn, the banks' increasingly stringent credit rules could be one reason why companies are turning to non-traditional channels of financing.

"Rising competition in the retail industry also means companies have to frequently and quickly secure capital to develop and launch newer products to meet ever-changing consumer demands."

Meanwhile, investors are also looking at alternative asset classes with better financial returns amid the sluggish economic growth, and crowdfunding appears to have "come up as a promising alternative", said Prof Cheah.

But risks remain, she cautioned, citing the possibility of capital loss should a company fail, and fraud.

"There's also the concern of whether these crowdfunding platforms are sustainable. As crowdfunding platforms proliferate, we are likely to see consolidation and differentiation among the players as competition intensifies."

A version of this article appeared in the print edition of The Straits Times on April 21, 2016, with the headline 'Crowdfunding scene on a roll as big firms jump on bandwagon'. Print Edition | Subscribe