What is crowdfunding?
Crowdfunding is a method of raising capital through the collective effort of investors, primarily online via social media and crowdfunding platforms. It is an alternative way of raising money where individuals or institutional funders provide a loan to a business borrower – typically a small or medium-sized enterprise (SME) or business development project. In return for the money received from investors, borrower returns the principal amount and interest of the specific project back to investors according to the payment schedule.
There are two types of crowdfunding- peer to business (P2B) and peer to peer (P2P). At CROWDESTOR we offer P2B crowdfunding options, where investors can invest in small and medium sized businesses (SME’s) and CROWDESTOR specialized projects.
Why should you choose crowdfunding?
Crowdfunding offers you many diverse options on how to increase your capital with very appealing interest rates.
The main benefits that crowdfunding can offer to any interested investor are low barrier to entry, simplicity, no cost, high speed, high returns and social involvement. Indeed, crowdfunding projects offer great interest rates and zero costs that will bring you higher return on your investments (ROI) than most of other alternative investment opportunities on the market, especially traditional ones. With crowdfunding you can also choose among many existing platforms, thus diversifying and lowering the risk of your portfolio allocated to crowdfunding. Other benefits listed above come from the fact that crowdfunding is not that regulated as financial institutions offering more traditional investment options, hence,
allocation of assets into crowdfunding projects hold a significantly lower bureaucratic burden as well as maintenance costs and efforts.
To be an investor through crowdfunding does not require an excessive amount of funds. At most crowdfunding platforms you can already become an investor starting from 10-50 EUR and grow your investments from there.
Crowdfunding investing not only offers you to earn additional passive income, but also to support sustainable projects or industries that you are passionate about. If your interests lay within real estate, transport, music and events, food and beverages, forestry or energy- we probably have what you are looking for!
Industry Terminology:
P2B - Peer-to-Business, type of lending-based crowdfunding where individuals or institutional funders provide a loan to a business borrower – typically a small or medium-sized enterprise or business development project.
SME - a small to medium size enterprise - business that has revenue, assets and number of employees below a certain level.
SPV - Special purpose vehicle - a subsidiary created by a parent company to isolate financial risk.
Interest - the cost paid by the borrower for using investors’ money for the funding period.
Principal - the original sum of money borrowed in a loan or put into an investment, on which the interest is paid.
Pledged asset - a valuable possession that is transferred to a lender to secure a debt or loan.
Collateral – an asset that a lender accepts as security for a loan. It may take the form of real estate, personal guarantee, etc. The collateral acts as a form of protection for the lender.
Cashback - a bonus that is paid because of affiliate program, for attracting new investors to CROWDESTOR platform.
Bonus payment- Payed out for the invested period before project is closed. For example, if the project was launched on 01.05.2020. and closed on 20.05.2020. and you invested in the project on the first day, you get the bonus payment for the days the project was still open.
Bridge loan- a short-term loan used to meet current obligations by providing immediate cash flow. Usually, they have relatively high interest rates, and are backed by some form of collateral.
Provision fund - a fund made in order to safeguard the Investor’s return in case the Borrower is subject to default.
Due diligence - an investigation, audit, or review performed to confirm the facts of a matter under consideration. In the financial world, due diligence requires an examination of financial records before entering into a proposed transaction with another party.
