Crowdfunding has experienced strong growth and great media coverage in recent years. The movement, initiated mainly by the artistic world with notably the financing of the first album of the singer, quickly spread and opened other opportunities.
All artistic, environmental, travel, entrepreneurial development, research and development, etc. projects carried out by individuals or companies can now benefit from them.
If the two crowdfunding solutions include a certain number of common points, such as disintermediation and the opportunity offered to individuals to invest in profitable projects or simply that they hold dear, crowdfunding and crowdlending also have their differences: are they ? Detailed review.
What are the differences between crowdfunding and crowdlending?
If we speak today of “crowdfunding” to designate all crowdfunding, some clarifications are necessary. Indeed, the term refers only to a particular form of financing: “equity-based crowdfunding”. This differs from crowdlending, in particular in the consideration received by the investor for the donation made.
But that’s far from the only difference:
- financial compensation;
- investor profiles;
- nature of the risk;
- average ticket;
These particularities make these two types of investments really different choices.
Counterparts of different nature
- Crowdfunding is an investment in a company in the form of equity participation. The investor then holds part of the business in the form of shares or units in exchange for the amount he has paid. In return, the latter may have to receive dividends, although this is not a principle valid for each investment. Note that these are random revenues, based on the economic performance of the company and whether or not it wants to remunerate its shareholders.
In reality, the consideration expected in most cases following a crowdfunding investment is in the medium or long term. The objective is to resell the shares held while generating a capital gain.
- Crowdlending is a system based on the principle of paid loan. The investor finances the project of an SME or a VSE in exchange for a return on investment. The project is open over a defined fundraising period. Crowdlending is therefore an alternative means of financing to the traditional banking sector. For the saver, the loan is an investment with a profitable rate. His account is credited with fixed monthly payments, including a share of the principal repaid and the interest acquired.
Different financial rewards
Another difference: financial compensation. Crowdlending is characterized by a monthly fee linked to the repayment of the credit. While for crowdfunding, compensation can take different forms. In exchange for funds granted to start-ups for example, the latter grant shares of their capital to investors. These shares can make it possible to collect dividends or be sold at a price higher than the purchase price.
In crowdfunding, no performance is guaranteed: the company can go bankrupt and the shares can lose their entire value. However, the earning potential if successful can be exponential.
Real estate is also an interesting example for crowdfunding: in this sector, promoters reimburse the capital invested and supplement it with much more interesting interests than traditional bank investments, ranging from 7% to 12% depending on the projects, what boost your savings.
Yield: rates known in advance for crowdlending
In crowdlending, the yield is known in advance. The rates charged are generally between 6 and 9%. It is different when you opt for crowdequity where the volatility of returns will be much higher. Result, the investor can multiply his stake, but also lose everything!
Different investor profiles
One of the most striking differences between these two financing methods concerns the profile of investors. In fact, crowdfunding generally involves larger amounts than crowdlending, even if both remain very accessible.
More than the level of investors’ wealth, it is essentially their risk appetite that is different. Indeed, crowdfunding is a way to generate greater gains, but it is however necessary to diversify its investments in order to dilute the risks in the event of bankruptcy or difficulty of one of the companies.
Higher risks for crowdfunding
Another major difference: the risk incurred by the investor. Indeed, it is significantly higher for crowdfunding. Why ? Simply because there is a real risk that the company in which you have invested may go bankrupt. In fact, the companies that use fundraising via crowdfunding are most often very young and sometimes very fragile startups.
It is quite different with crowdlending. This form of crowdfunding is based on the virtual certainty of recovering your interest every month. In addition, crowdlending returns are quite attractive (sometimes more than 10%).
In summary, an equity investment is more risky than a loan. In fact, with this type of investment, the company does not undertake to reimburse you or even pay you dividends. It is different with crowdlending: in this case the company undertakes to reimburse you under the conditions set out in the contract.
Good to know : from a legal point of view, there is a noticeable difference between a lender and a shareholder. In the event of financial difficulties, the lenders are reimbursed before the shareholders. Translation: it is extremely rare for the latter to recover something in the event of bankruptcy.
A bigger average ticket for crowdfunding
In terms of total harvest amounts, the two forms of crowdfunding, crowdfunding and crowdlending follow the same trend: a dizzying increase in their average ticket. However, there is a slight advantage for crowdfunding, especially in the real estate sector. This general trend reflects in both cases the changing vision of the French on investment methods.
In a majority of projects, whether crowdfunding or crowdlending, it is possible to invest from $ 100.
What do crowdfunding and crowdlending have in common?
Whether crowdfunding or crowdlending, in both cases it is crowdfunding. That is to say the financing of a company or a project by individuals and/or institutions. The basic operation is simple: a web platform connects investors and entrepreneurs with projects.