Wednesday, March 25, 2015

MoolahSense New Campaign: Seoul Yummy (and understanding loan amortization)

Again, I must stress that I am not paid to write about MoolahSense, their current campaign, or the company that is trying to raise money, Seoul Yummy. I am just writing about it because it interests me and I like to share my thoughts with people who bother to look into my deranged mind. I might decide to lend them money in the future, but as of now, nope, I've no vested interests at all.

MoolahSense just launched a new campaign and it is for Seoul Yummy, a Korean restaurant. I think raising money to improve a business is almost always a good idea in my books. They are looking to put together $200,000 to open 2 more outlets (they already have 4).

(The Bugis+ outlet, credits: Eugenia from Spacestardom)

Personally, I really like Korean food, though I must admit that I am pretty distanced from the whole K-pop and Korean wave. I think I've only seen random bits of some K-dramas and maybe a few episodes of Running Man. Running around Korea earlier this year is probably the most involved I've been in Korean culture actually. My grandmother makes really mean Korean food though, so I know what good Korean food tastes like. Don't ask me why she cooks Korean food. That's another story for another day.

(Psst, my favourite Korean girl, Han Jang Hee)

I have written about MoolahSense before, and I still think that having a P2P (P2B in this case?) lending site is great. If there are more sites like this and the scene becomes more vibrant, it would really make way to lower costs of funding for borrowers and higher rates of returns from lenders willing to take the risks. With everything closer to each other, who knows how many more business ventures and collaborations might stem out of this industry? I think it is a good area to explore and develop.

However, I think some people are blissfully unaware that this is an amortizing loan, not a fixed coupon bond.

For example, although the interest rate cap on this campaign is set at 10%, that does not mean that you will get back 10% plus your capital in a year's time. That would be a fixed coupon bond. An amortizing loan is like your housing loan, where you pay the interest and also the principal outstanding. This means that although you are collecting 10% interest, the principal outstanding is reducing, so the interest due is also reducing.

This would be an example of a 1 year loan of $1,000 with 12 monthly repayment periods.


As you can see, the final amount that you collect back in a year is actually $1,054.99, which is pretty much a 5.5% return instead of the 10% return that you might expect.

There isn't any trickery in this, that's just how loan payments are like.

Anyway, back to the campaign. I am actually interested in this campaign! I will probably head down to one of their outlets and give their food a try and also see how their business is doing before I decide to look further. No point investing in a restaurant if you don't think that the food is good, right?

Now, this is the kind of hands-on research that I won't keep procrastinating about, haha!

8 comments:

  1. I'm interested in MoolahSense too; it would be nice to have ~10 investments of say, $1000 each in such SMEs. Do let us know how you find Seoul Yummy's food!

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  6. Replies
    1. Hi Kenji. Lol yeah I have a few other posts that attract a lot of these kinda comments!

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  7. You can also check out my blog post on my moolahsense investment:

    http://www.livingafreelifetoday.com/blog/moolahsense-risk-worth-reward/

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