Crowdfunding, crowdlending… What is each thing? Surely there are certain terms that appear, become fashionable, but you really don't know what they are referring to or what they are for.
This is what can happen with crowdlending. And to avoid this, we have prepared an article with a guide so that you understand this term as best as possible. How about you take a look?
What is crowdlending
The first thing you should understand is the meaning of this term. Since if you don't know what we mean, you can easily confuse it with others.
Crowdending can be conceptualized as a type of economic loans that are given to a project or a person. Now, in this case it is a loan, literally. Which means that this money will have to be returned in the future according to the payments or deadlines that are established, as well as the interest rate.
To make it clearer, imagine that you have the dream of publishing a book, but not the money to do it. So You do crowdending in which a person gives you the money to make that book a reality.
Actually, he doesn't give you the money out of pocket, but rather you agree to return it to him, not only what he has given you, but also some interest. And all this within an agreed period and an agreed monthly, quarterly or annual fee.
Now, this implies that, If the book is very successful, the person who left you the money does not benefit, since it acts more like a mere bank than as someone who supports the project. In other words, the benefits are all for you.
This type of financing is more appropriate for those projects that need to be financially solvent but cannot access the usual loans.
Crowdfunding vs Crowlending
When searching for the term crowdfunding, it is very common for the results that appear in search engines to mention crowdfunding. And this can lead you astray. And it is that Crowdfunding is not the same as crowdlending.
Where do they differ? We tell you:
Benefits
It is true that there are benefits in both crowdfunding and crowlending. In the first case, these will depend on the success and what the person who joins the project contributes; In the second, you will only obtain as a benefit the interest that is added to what you have lent.
In other words, they both win but in different ways. What is clear is that in crowdending there is greater security of winning since the other person agrees to return the money. In the case of crowdfunding, if the project is not successful there will not be much to gain.
Risk
You have to keep in mind that investing your money involves a risk because you never know if you will get it back.
In the case of crowdfunding, it is said that the risk is very high since it is only recovered if the project is successful.
Now, In the case of crowdending the risk is lower. It still exists, but it is as we told you before, having a series of agreed payments, interest, etc. The other person must respond to return the money that was left. And sooner or later you will have it again.
Warranty
Another difference that you can find in the case of crowdfunding and crowlending is with respect to guarantees. That is, whether it is safe or not when investing in the project you have in hand.
When crowdfunding is done there are no guarantees that the project will work, be successful, etc. Everything will depend on how it goes and here only intuition and analysis of that project can help you make the right decision.
In the case of crowdending there is a little more guarantee. But not much either. And it may be that, in the conditions agreed upon between the two people, There may be some guarantees that help make the final decision.
Advantages and disadvantages of crowdending
Now that you have a better idea about what crowdsourcing is and the difference with crowdfunding, Would you be able to weigh the pros and cons of this form of financing?
Don't worry, here we have compiled the most important points, which would be the following:
Advantages
Among the main advantages we must highlight, without a doubt, the possibility of accessing extra financing, especially in cases in which the usual ones are closed to you (we are talking about banks).
Another advantage to take into account is that the process, in most cases, is usually quick and convenient for both parties. You see, when a person is interested in crowdsourcing a project, They normally present themselves and establish a series of conditions for delivering the money and for the other person to return it. And almost always the conditions tend to be better and agreed between two than in the banks (which are more static).
Furthermore, there is no need to wait for acceptances or anything, because in this case both parties involved intervene.
In the case of investors, One of the benefits they obtain from crowdsourcing is the possibility of diversifying their money in multiple investments. That is, they do not leave their money standing still but move it through the different loans, causing them to later recover an extra percentage for having lent it.
Drawbacks
In the case of crowdending drawbacks, there are also several to take into account.. One of the main ones is the interest rate that often has to be borne. Not having access to banks, many investors ask for a higher rate even than those of these entities, which can harm those who launch the project.
This brings us to a second problem: the risk of non-compliance. That is, the person, even having made a commitment, cannot satisfy the quotas that have been determined by contract. And if he has nothing to respond with, the investor could lose all of his money.
To all this we must add the lack of regulation. And it is not as legislated as other financing figures, which can cause more cases of fraud, bad practices, etc. to appear.
Are you now clearer about what crowlending is?