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Crowdlending is the new buzzword in small business investment circles. Due to the growing number of influencers and bloggers shining a spotlight on crowdfunding and crowdlending, the international crowdlending community is growing.
Swiss and European interest in this business loan system is increasing, too, and you may want to get involved yourself. The European Crowd Lending and Crowd Investing Market size is currently estimated at USD 13.21 billion, and major future growth is expected.
But what is crowdlending and how do you participate with less risk and more reward? In this article, we examine the promises and pitfalls of crowdlending and highlight best practices for choosing a reputable lending platform. Read on to learn more about this investment system and what it can do for you.
Crowdlending, or peer-to-peer (P2P) lending, involves the collective funding of loans by multiple individuals. It is therefore a type of crowdfunding, but is more lending-based. Hence, it is also known as "lending-based crowdfunding".
Crowdfunding, as well as crowdlending, gives entrepreneurs the means to get their start-ups off the ground. While both are a financing alternative to traditional banks, they differ in the motivation behind those financial contributions.
Research in recent years has shown that 62% of Europeans are keen on moving from traditional banking to digital platforms. This trend is set to continue. Naturally, it has led to an increase in interest in bank-independent loans offered online.
Crowdlending meets this need and offers benefits for both the borrower and the lender.
Crowdlending is, of course, a great benefit to small business owners and individual entrepreneurs. A crowdlending platform allows borrowers to cut through the red tape associated with traditional loan institutions.
Crowdlending provides them with the finance needed to boost their innovations. It provides them with the start-up capital or project funding they need, without traditional bank loans and intermediary fees.
While engaged in the crowdlending process, entrepreneurs are also creating awareness of their brand.
Participating in crowdlending offers distinct benefits to the keen investor, too.
We all have the social responsibility to assist and uplift where we can. Crowdlending allows investors to do this perfectly. A crowdlending contribution is not a handout but a savvy business investment. Yet, it also offers the less tangible benefit of knowing that the investment is helping a rising talent make their mark in the world.
Crowdlending can bring great financial returns. That said, any financial venture carries inherent risks and rewards, and that is also true of crowdlending. Here are the biggest risks and rewards you’ll encounter.
Crowdlending without careful expert guidance increases your potential for loss rather than reward. Fraudulent behavior like misallocation of capital is a possible avenue of loss. A lack of transparency, inept management, or a lack of experience can also cause a project you have invested in to fail.
Another risk is that the borrower will be unable to pay back the investment. You can, however, mitigate this risk by choosing a reputable platform that vets the borrowers they list.
Unfortunately, some platforms and countries lack the necessary crowd-lending regulations. As a crowd lender, you need these regulations in place to protect your interests. Reckless lending as a beginner will expose you to fraudulent operations.
Do your research, and choose lending platforms carefully. The right crowdlending platform will ensure that all financial and investing regulations are adhered to. This will protect your investment from fraudulent activity.
On trusted crowdlending platforms like Maclear, each borrower undergoes comprehensive risk assessment checks. This includes business and financial model evaluations, with total transparency. This helps you choose an investment opportunity without the fear of the unknown.
Opt for reputable business lending platforms that adhere to European standards and regulations, like Maclear and you’ll have peace of mind.
Maclear complies with PolyReg SRO, a self-regulatory organization (SRO) recognized by the Swiss Federation per Article 24 of the Money Laundering Act.
As a crowdlender, you’ll enjoy higher returns on your investment than conventional savings accounts or even fixed deposits. As a member of a crowd-lending community, you can diversify your investments and potentially enjoy passive income through significant returns.
Online crowdfunding and crowdlending systems can take many forms. They all have one thing in common – the financial contribution to a new business or project. They differ in how lenders are compensated, if at all, for their financial contributions.
The GoFundMe platform is a good example of donations-based crowdfunding. This allows people to donate money to charitable causes (or even personal causes), but they receive nothing in return. This is ideal for anyone with altruistic motives, who wants to support a cause. However, it is not an investment that can lead to long-term benefits.
Investors may choose to contribute to an online campaign in return for tangible rewards like products or services from the company they invest in. Rewards may also be intangible, like online recognition which promotes them as supportive of up-and-coming talent.
Investors receive a share of the business ownership or net profits. In the case of a new business, this is a risky move. Equity-based lending can be lucrative, but many new start-ups inevitably fail due to a lack of experience, expertise, and guidance. It could mean losing your investment and never seeing rewards.
Lending-based platforms like Maclear are the best lending possibilities available. They revolve around investments in small businesses or innovative projects. As a lender, you will provide the capital the borrower needs and receive these funds back with interest.
Lending-based platforms offer the most benefits for both borrowers and lenders. It allows the borrower the opportunity to engage in business and create revenue. It allows lenders to see a return on their investment, as well as less tangible rewards such as giving meaningful opportunities to new talent.
When choosing a crowdlending platform, look out for the following characteristics:
Does the lending platform you are considering have the credentials that count? Larger platforms referred by your peers and industry leaders are generally a better bet than new, small platforms that are less known.
Does the platform comply with European regulations for financial transactions and investments? If not, you could place yourself at risk of fraud and loss. Insist on proof of regulatory compliance.
Transparency is key in the crowdlending arena. Is the platform you are choosing committed to honest and transparent communication? Do they furnish investors with all pertinent details about the borrowers on their platform?
A good crowdlending platform will perform all necessary background checks on borrowers. This allows you to make sound investment decisions based on credible information.
Participating in crowdlending offers distinct benefits to the keen investor, too.
We all have the social responsibility to assist and uplift where we can. Crowdlending allows investors to do this perfectly. A crowdlending contribution is not a handout but a savvy business investment. Yet, it also offers the less tangible benefit of knowing that the investment is helping a rising talent make their mark in the world.
Crowdlending offers real-world opportunities for growth for borrowers and lenders. However, to enjoy these benefits, and escape the perils of reckless investing and financial loss, you need a reputable platform.
Maclear brings borrowers and lenders together in the crowdlending environment. It helps you navigate the crowdlending scene to find business loan opportunities, safely and confidently.
You will find the platform easy to use, and enjoy real returns on your investments. You’ll also enjoy extra incentives like referral, cashback, and loyalty bonuses. Most importantly, every business loan you make is backed by a safety net of background checks and regulatory adherence.
