Online peer-to-peer funding platform Validus Capital has partnered home-grown insurance provider EQ Insurance to offer investor protection on some of the financing it provides to small and medium-sized enterprises (SMEs).
It will be the first platform in Singapore to provide investor insurance on its invoice financing services, the company said.
Validus Capital is an online lending platform that links SMEs with investors. It is among a growing number of firms here offering a new spin on the old business of invoice financing.
Traditionally, invoice financing involves companies selling their rights to future cash payments from their customers to a bank at a discount, in return for immediate funding. This can be a useful source of finance for cash-pressed small businesses.
A number of start-ups have now taken this process online, by allowing accredited investors to buy yet-to-be-paid invoices and earn an attractive return when these invoices are paid.
Validus Capital already conducts due diligence on SMEs that apply for financing, but insurance for investors will provide an extra layer of protection, said Validus Capital co-founder Vikas Nahata.
"Peer-to-peer lending platforms have recently been plagued with issues on governance and trust, as well as rising non-performing loans," he added.
"We... recognise that invoice financing is key for Singaporean SMEs and offering insurance to the investors is a way of securing them. This encourages participation from the lenders and creates a win-win scenario for all."
The platform, which was founded last year, has had a zero-per-cent default rate to date thanks to its "rigorous due diligence", the company said. In the last few months, the company has had 27 SMEs approved for invoice financing services, each with an average revenue of $5 million.
About 20 investors are signed up with Validus Capital, and the firm is also "in the middle of onboarding a large fund to invest through the platform", said Mr Nahata.
Other firms operating in the space said they are also exploring more ways to protect investors, especially as online financing platforms gain traction.
Mr Prakash Somosundram, co-founder of Pealo - an aggregated marketplace for SMEs to access working capital - said the firm is looking into investor protection products. "This will definitely help us to attract more investors, and more people will see this form of investing as an asset class," he added.
Pealo's platform was launched in January - 300 SMEs have signed up and there are 46 live campaigns under way.
Mr Brian Teng, chief executive of InvoiceInterchange - which allows SMEs to put up their unpaid invoices for auction - also said the platform hopes to eventually make insurance available to investors.
Mr Teng declined to reveal how many SMEs have used the platform, but said there is significant room for invoice financing to grow as a source of funds for SMEs here.
"The penetration rate of invoice financing in Singapore is still low when compared with nations like Britain and the United States," he noted. The company has funded $4 million of invoices since its launch in 2015.
Mr Roger Crook, chief executive of Capital Springboard - which runs a crowdfunding platform for invoice financing - said more than 100 SMEs have used the service.
The platform has funded over $85 million worth of invoices over the past year, with over 50 accredited and institutional investors taking part.
"We wish to grow our platform with quality business as fast as the market will allow, which we believe will be at least four-fold in the coming years," said Mr Crook.