Crowdlending, also known as peer-to-peer (P2P) lending, is a rapidly evolving financial model that has changed the way businesses and entrepreneurs get funding. It allows companies and individual entrepreneurs to acquire funding from a large and diverse pool of investors, without having to approach a bank or traditional financial institution. We take a closer look at how it works here.
Traditionally, fundraising has involved approaching a small group of wealthy investors, banks and financial institutions, pitching your idea or venture and hoping that it’s deemed worth the investment. But thanks to the internet, borrowers and lenders can now interface directly, allowing for multiple, smaller transactions and the democratisation of the lending process.
Platforms such as Estateguru serve to facilitate these transactions by matching lenders and borrowers online. Projects are listed for individual users to consider. If they like what they see, they can contribute a relatively small amount (as little as €50 on the Estateguru platform) to the total loan amount. Once the target has been reached, the project is funded.
Investors gain greater control of their investments, a simple means of assessing projects for themselves and the opportunity to diversify their portfolios by lending smaller sums to multiple projects in different markets. Interest rates are typically higher to account for greater risk, and if the crowdlending platform is diligent in selecting projects for their platform, the risk needn’t even be higher. You can read more about the advantages of P2P lending for investors here.
For borrowers, Peer2Peer lending can provide a more accessible source of financing than the conventional sources. Banks and financial institutions are frequently unwilling to back developers who can’t boast an extensive track record, or issue loans when the amount is not sufficiently high. As things happen much faster online, and given the absence of unnecessary red tape and old fashioned protocols, P2P funding is typically much faster, and flexible. You can read more about the advantages of P2P lending for borrowers here.
Although many P2P loans are unsecured, this is not always the case. Estateguru prioritises investor safety by requiring that all loans be secured by collateral in the form of Real Estate. By offering investors the opportunity to assess multiple projects in different markets and invest as they see fit, and by ensuring that each project meets strict standards of due diligence, Estateguru seeks to further mitigate the risk of bad debt. You can read more about how Estateguru approaches risk here.
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