Many of us have heard about ‘Crowd Funding’ or ‘Peer to Peer’ lending, but what are these really about, how do they work and are they the genuine article?
The basics are that these sites put the depositor and lender together. Historically the depositor has put his (or hers) cash into the bank, who then use this money to fund lending. In return the bank pay the depositor interest and charge the lender, making a healthy profit in between. OK, this is simplistic but the theory is sound.
Crowd Funding is about removing the middle man and putting both parties together, the site take a cut but generally pay the depositor a better return and give the depositor complete transparency about where their cash is being used.
This transparency exists as the depositor chooses which business to lend to, they decide how much they will commit and can even set the rate of return they wish to receive. A bit like being a Dragon on Dragons Den bar you don’t get to say how the business you lend to is run.
Crowd Funding sites will always pre-qualify businesses looking to borrow, the case has to be solid and the affordability in place. With these criteria met then the proposal is put on the site and the depositors get to chose who they invest in.
For the borrower, your contract is with the Crowd Funding site only, and you are responsible for paying them. The sites build in a bad debt margin which is considered a cost of the business.
How Do I Find Out More?
The easy answer is to ask us. We will help you through the process and get you on your way, we don’t take a cut of what your borrow and we have a higher success rate than businesses who apply direct.
Therefore, if you want to know more then please call 0844 682 1462
We think there are some great schemes out there, and with more new entrants due over the next 18 months it is well worth growing your awareness now.
Please add your comments below, or call us for more information.