As the world changes so does the world of lending and in recent years crowdfunding has become a popular way for businesses and individuals to raise funds for new ventures.
Crowdfunding is a method of raising finance by asking a large number of people to contribute a small sum of money to finance a project. Traditionally, borrowers would need to speak to a range of lenders to raise their funds which can be very time consuming. Crowdfunding allows an individual or business to talk to thousands of people via the power of the internet. This form of raising finance often results in target figures being raised much faster than traditional lending methods.
You may think crowdfunding only comes in one form, donation crowdfunding, however here are 3 main types of crowdfunding. We will detail more on each below.
This is perhaps the most well-known form of crowdfunding. A donation or reward crowdfunding project involves people investing because they believe in the cause the project is financing. Donors will usually be driven by a personal or social motive and will expect no financial return for their donation. People tend to invest in donation crowdfunding projects as it makes them feel good about helping a cause or individual for the greater good.
Debt crowdfunding is also sometimes referred to as Peer-to-Peer (P2P) lending. This kind of crowdfunding allows individuals or businesses to lend money to each other while bypassing traditional banks. Debt crowdfunding does lead to a return on investment for investors, they will receive the money they invested plus interest back. Many also choose to invest in projects via debt crowdfunding because as well as financial benefit, they will be contributing to a project they believe in.
Equity crowdfunding can be compared to traditional investment methods but with a modern twist. As with traditional investment methods, individuals or businesses invest in a project or opportunity in exchange for equity in that project. The money invested is exchanged for shares or a small stake in the business or project. Just like traditional investment methods, the value or the shares increase or decrease depending on the success of the business or project.
With the CreditOnline Crowdfunding system clients can have their project investments put into a secondary market, we fully support this functionality in the crowdfunding system.With the secondary market feature clients can sell their current investments and get the profit faster, though with lesser value.