Crowdfunding, crowdfunding, fundraising and investment options: Debt Crowdfunding
Last time we talked about Crowdfunding in a form called Equity Crowdfunding, which involves issuing shares to sell to investors. This time I would like to invite you to talk about matters related to Crowdfunding in the form of Investment. Another type is Debt Crowdfunding.
Debt crowdfunding is a type of debt fundraising. The purpose of this method is to raise funds as working capital, or short-term investment. As we know, working capital is crucial for SMEs to maintain business continuity; it's like the lifeblood of a business. However, due to the nature of SMEs, which often lack strong bargaining power and credit standing, they may experience financial mismatches between receiving payments from customers and paying suppliers, disrupting business operations. Alternatively, SMEs may want to expand but are unable to obtain loans from traditional financial institutions because they don't meet certain lending criteria.
• There is no history of past debt payments in the credit report.
• No collateral required.
• Fails to demonstrate strong cash flow.
• Existing debt burden
These are the pain points of SMEs that were historically difficult to resolve, or sometimes even necessitated business closures. Debt crowdfunding has therefore become increasingly important in addressing these issues, enabling SMEs to grow further and contributing to the overall Thai economy.
Furthermore, debt crowdfunding does not cause business owners to lose ownership, unlike selling shares (which should be avoided when the company structure is not yet ready). In other words, debt crowdfunding removes financial constraints beforehand, allowing the business to expand smoothly and enabling a strategic approach to creating business value, or what I like to call a financial roadmap.
In Thailand's current debt crowdfunding market, fundraising periods range from 6 months to 2 years, with popular fundraising amounts between 2 million and 20 million baht. This is because these funds can be closed quickly, making them popular with investors. A company in Thailand has previously raised a record high of 80 million baht through debt crowdfunding, achieved over a 6-month period.
From an investor's perspective, investing in debt crowdfunding yields returns in the form of interest. Most fundraising companies and crowdfunding platforms structure the interest rate as a fixed rate. The amount of interest depends on the creditworthiness of the company seeking funding. The crowdfunding platform helps calculate this by providing a credit rating using its own credit scoring engine, considering factors such as historical financial ratios, industry characteristics, management, and years of operation.
Furthermore, investors now have more investment options, allowing them to diversify their portfolios into both long-term and short-term strategies. This includes opting for both long-term investments through Equity Crowdfunding and short-term investments through Debt Crowdfunding, which offer fixed returns (fixed interest rates) of 8%-12% per year, considered attractive.
However, all investments carry risks. For crowdfunding investments, investors should carefully review the information provided in the prospectus offered by the crowdfunding platform.
