The concepts of crowdfunding and crowdlending began to gain popularity at the beginning of the 21st century, especially in Anglo-Saxon territories. However, such initiatives have existed even before that time and have provided us some original and fascinating models to look at.
What do crowdlending and crowdfunding mean?
Although both terms are quite similar in meaning, there are still some important differences. The primary discrepancy between crowdlending and crowdfunding lies in the purpose sought by the participants of each operation and the expected return on their investment (ROI). In both cases, we have a group of people – a crowd – gathered around a common idea, providing capital to materialize a particular project. When we talk about "crowdfunding," we refer to a group of people who, with their contribution to the project, become investors and acquire a business. And within this modality, also known as "crowd equity," there are different possibilities to obtain the expected return, such as a percentage of the company's turnover or net profits.
In "crowdlending," the investor lends his money to recover it with the agreed interest later. Crowdlending makes a lot of sense because it puts borrowers and lenders in direct contact, eliminating the central entity that usually is represented by a bank. If the bank charges 10% interest on a loan, which it makes with your money, and it gives you 2% interest on your deposit, doesn't it make more sense for two parties to leave out the bank from their arrangement and achieve better economic conditions for both sides? If they agree to a 6% loan, for instance, the borrower will be able to get a cheaper loan, and the lender will see a higher return, keeping more of their money in the bank.
How to invest in crowdlending and crowdfunding?
The Internet has popularized the crowdlending and crowdfunding industry to the extent that it grows year after year at a double-digit rate. The Internet has made it possible for anyone in the world to become an investor of crowdlending or crowdfunding from home. On the other hand, it gives entrepreneurs new forms of financing beyond the traditional channels.
The industry specializes exclusively in very specific niches of the market, such as projects related to medicine, real estate opportunities, and loans to unbanked people in developing countries.
How does solidarity or social crowdfunding/crowdlending work?
We can see that there are specific donations aimed at supporting charitable causes. These actions, which have existed for centuries, brought together a group of people, united by the same purpose of making small contributions, expecting nothing in return rather than seeing the success of the goal.
However, the concept of social enterprise has promoted a new modality emerging strongly in recent years. A social company differs from third sector organizations because they have a declared profit.
However, unlike traditional companies, they are focused on solving a social problem at a global level, combining in the same project the possibility of being profitable and sustainable while trying to generate a social, economic, and environmental impact on the planet. They can also be identified as triple-balance sheet companies. An option that gains more adherents every day because it gives the same project the personal satisfaction of contributing altruistically to a noble cause with obtaining an economic return for our collaboration.
In this sense, the world of impact investing, which has been growing extraordinarily in recent years, is committed to creating an extensive network of investment funds, acceleration processes, awards that recognize the impact, and functional and operational social enterprises.
What is a reward or investment crowdfunding?
Subsequent evolution of donations can be found in crowdfunding, known as "patronage." For the contribution made, the patron receives an incentive or a reward from the promoters. These projects are often very difficult to use traditional funding and are closely linked to artistic initiatives. For their contributions - and depending on their size - patrons will receive one or more products; services associated with a future project; or even exclusive personal experiences, which are not easy to quantify but act as an incentive for the investors.
Types of crowdfunding and crowdlending.
Atendiendo a lo escrito con anterioridad podríamos recoger las siguientes modalidades.
- Donations or altruistic crowdfunding, during which a group of donors does not expect any return on their investment.
- Patronage crowdfunding - getting donor pledges in exchange for a reward. The reward might not necessarily have any economic value, but it can carry symbolic significance.
- Equity Crowdfunding, where investors receive ownership of the project or the promise of return in the form of a percentage of profits or turnover.
- Crowdlending is a form of investment in which investors are promised repayment with interest stipulated by the loan agreement.