Investing in companies helps the country's economy while allowing attractive returns to be obtained.
Companies seek financing to meet their financing needs. Thanks to crowdlending platforms, anyone can invest directly in companies by lending them their money in exchange for a return. Generally this is in the form of loans with repayment in monthly installments and terms between 12 and 36 months generally. But with the appearance of a new form of crowdlending called crowdfactoring, it is now also possible to finance the cash flows of companies.
What is factoring?
through the factoring Companies assign the collection rights of their customers' invoices to obtain liquidity and advance their payment, while simplifying their collection efforts. More and more companies resort to this alternative modality of crowdfactoring to anticipate the collection of your invoices. The financing in this case comes from the savings of multiple individual or professional investors, who seek an attractive return in exchange for lending their money and it is they who acquire the collection rights of the invoices receivable. When the invoice expires, the debtor pays directly to the platform and it distributes the money among the investors who have participated. We will tell you more about this short-term investment modality later.
These products increasingly retain more investors for their benefits compared to traditional investment.
Traditional Short Term Options
The traditional options for invest short term investors are less and less convinced. Generally, traditional short-term investments can be divided into 3:
- short term deposits
- Treasure letters
- Short-term investments in the Stock Market
The current traditional market is not offering an attractive return, sometimes very close to zero. As in the case of deposits, and in general fixed income. For example, the latest data reported by the Bank of Spain on the profitability of one-year fixed terms is 0.4% per year. Profitability forecasts are not optimistic, since the low interest rate policy established by the European Central Bank has once again been extended. Furthermore, there is no short-term evidence that interest rates will start to rise.
On the other hand, equities are closely related to the markets. We are currently in a turbulent scenario. Trade tensions between the US and China are having a huge impact on world stock markets. This, together with Brexit in the United Kingdom, does not help the stability of equities in Europe and Spain either. All these stimuli cause very pronounced volatility in equities in the short term.
In this situation, what alternatives do investors have?
Alternative options in the short term
Crowdfactoring, as we told you before, is a short term investment alternative decorrelated to the markets. In this way, investors can add to their portfolio a product that is not dependent on current trade tensions. Crowdfactoring is a product that stands out for its liquidity and profitability for investors. Generally, investors recover the money invested and the interest generated within an average period of 90 days at an average rate of 5% per year in the case of MytripleA.
Investment security in factoring
In the case of MytripleA, in many cases there will be credit insurance that will cover the risk of insolvency of the debtor, that is, if the debtor of the invoice defaults for a reason and insolvency, the Credit Insurance contracted by MytripleA, will be will pay both the capital invested by the investors and the ordinary interest, therefore, the investors will recover the 100% of their investment plus the promised interest.
In case of not having this insurance, MytripleA, to minimize the risk, carries out different actions such as the incorporation of a rating, verification of the invoices, makes a global assignment of the invoices and not only of the anticipated ones and the risk In this case, the assignor assumes it.
The importance of diversification
Similarly, crowdfactoring allows investors to diversify their portfolio, thus reducing overall risk. Therefore, crowdfactoring is a recurring product that allows multiple diversification:
- Diversification by sector. Investors can select the business of both the debtor and the assignor.
- Diversification by company. Investors can select different companies to invest in, so the risk of default is different for each transaction.
- Diversification by debtor. Within the same company, investors can select operations with different debtors.
It is important to be clear that zero investment risk does not exist, but with good diversification and knowledge about the characteristics of each investment product, the risk can be reduced considerably.
Jorge Antón, CEO of MytripleA