Lending crowdfunding is the capital-raising model that traces the loan scheme: the company launching the campaign on one of the existing lending crowdfunding platforms collects money on loan from participants and then pays it back at maturity with predetermined interest. Along with equity crowdfunding, it is a mode of crowdinvesting; in fact, supporters of a lending crowdfunding campaign are investors, in that they contribute capital that is then remunerated.
With the entry into force of the EU Regulation on crowdfunding, lending crowdfunding platforms have also become subject to specific regulations for their operation and investor protection, whereas until now there were only a few rules scattered among different regulatory reference documents.
So let's see which are the main lending crowdfunding platforms in Italy, how they work and what is their role.
Types of lending crowdfunding platforms
Lending crowdfunding platforms can be of two types:
The former are devoted exclusively to loans to businesses, the latter to loans to individuals. Mixed platforms are rare. In this article we will focus on the first type.
A further distinction is between generalist platforms, i.e., hosting projects and companies from any economic sector, and real estate platforms, i.e., focused only on real estate projects, which are very popular in lending.
The last categorization of lending crowdfunding platforms concerns the model proposed to investors:
- the widespread model allows interested investors to make capital available to the platform and give indications of the type of investment desired (interest rate, risk level, etc.), but not to choose the individual project in which to invest, a task that falls to the portal managers;
- the direct model leaves the choice of projects to be financed and the finalization of the investment to the investors.
The first model is the least adopted; it is more akin to a form of managed savings and involves higher service costs and lower risks. The second is the model that most closely follows the actual crowdfunding paradigm.
How lending crowdfunding platforms work
Lending crowdfunding business platforms have a selection team that is in charge of screening the projects proposed by companies that want to launch a campaign. Since the success of a platform is closely related to the success of its campaigns, the selection phase is very important: only companies with a solid and convincing business plan, acceptable creditworthiness, and good crowdfunding awareness receive the green light to launch a lending crowdfunding campaign. Some platforms rely on external rating agencies to evaluate companies; others develop credit scoring models in-house.
It is in the interest of everyone involved-the platform, the company, the investors-that the selection is careful, because a campaign that fails hurts everyone. It is better for a company to be rejected at a time when it is not ready for a lending crowdfunding campaign than to try at all costs and face failure. Crowdfunding platforms often attach advice and guidance to proposal rejection to strengthen weaknesses and achieve the required level of readiness and soundness.
Companies that make it through the screening process must prepare materials to be included on the campaign page on the lending crowdfunding portal: some data are mandatory for all, for example, interest rate, loan term, risk class, and business plan; others may vary from portal to portal.
There is usually someone on the platforms' team whose role is to support the companies at this stage, and it is often the same campaign manager who then follows up. Different crowdfunding platforms offer support of different quality and quantity, and many offer additional paid services and collaborations with external partners.
Loan processing in lending crowdfunding
Investor disbursements in lending crowdfunding are processed by the platforms through third-party payment institutions: the platforms do not retain money, but act as "payment institution agents." At the end of the campaign, it is the payment agent that disburses the capital raised to the company. First, however, the platforms retain a success fee on the total amount raised, which is their fee.
Typically, companies can choose between two modes of loan repayment:
- amortizing, i.e., payment in multiple installments at fixed predetermined intervals;
- bullet, that is, repayment of the loan in a lump sum at the end of the campaign and subsequent periodic interest payments.
It is the lending crowdfunding platforms themselves that verify the regularity of payments, but they do not act as guarantors and in case of default are not liable in any way.
Companies can submit their own guarantors to be associated with crowdfunding campaigns, increasing their attractiveness to investors. For some types of projects, it is possible to apply for the activation of the State Guarantee Fund. Finally, some platforms offer a default fund, fed by a fee charged to the investors themselves: a kind of insurance.
The last aspect to consider is the handling of interest taxation: some platforms have partnerships with services that act as tax withholding agents for investors and take care of withholding the 26 percent tax from the interest paid by companies, while others do not offer this service and therefore leave it up to the company to apply the withholding tax on the interest.
The role of platforms
As we have already pointed out for reward crowdfunding platforms, for lending platforms it is also necessary to clarify what to expect from portals and what not.
Indeed, companies often think that it is the platforms that bring in investors: unless it is a widespread model portal that is paid to do so, this is not the case.
The promotional activities that portals can do for their campaigns are limited and generic: the bulk of supporters come from the communities that companies manage to create around themselves and their project, doing strategic marketing. The main investors, in fact, are the proposing company's customers or potential customers, and who better to reach them than the proposing company?
Especially since the new EU Regulation has introduced a ban on platforms explicitly promoting individual campaigns.
The best lending crowdfunding platforms
The 2023 report of the Milan Polytechnic's Crowdinvesting Observatory recorded as of July 2023 a complex of 4 consumer lending crowdfunding platforms, 10 generalist business platforms, and 17 business platforms specializing in real estate.
Here are the main non-real estate platforms:
Below, however, are the major players in real estate:
Ricordiamo infine che, con l’entrata in vigore del Regolamento UE, è possibile lanciare campagne di lending crowdfunding anche su piattaforme autorizzate estere, per esempio:
e molte altre.
Choosing a lending crowdfunding platform is important and delicate, and you should carefully analyze the different options available to you, depending on your needs.
Turbo Crowd can support you in choosing a platform, as well as in the marketing activities that are fundamental to any crowdfunding campaign, which are our specialty: to find out what we can do for you, book a free initial consultation!