Fintech crowdlending – founders and young self-employed people know the problem: you have a promising business idea for which there is a high demand on the market. But setting up a business costs money, and it usually takes a few years before the new company is established and generating profits. Fintechs also make no difference here. While the digitization of financial services is likely to offer enormous potential in the coming years, a new company needs money to establish itself successfully. Increasingly, one also hears about alternative forms of financing such as crowdlending in connection with young fintechs. But what is crowdlending, and what is its significance for fintechs?
Crowdlending is funding with many backers
Crowdlending is a form of crowdfunding, also known as "Schwarmfinanzierung" in German. The Federal Financial Supervisory Authority (BaFin) explains crowdfunding as a financing by many lenders with mostly manageable contributions for individuals. Loans are typically issued through internet platforms. So, through these platforms, many lenders join together to finance a larger project with small sums of money.
Crowdlending is where the borrower receives a loan from their lender, which is why it's often considered an alternative to a traditional bank loan. There are some online platforms in Germany, which were launched for the mediation between financier and borrower. The first well-known fintech crowdlending portal in Germany was smava. An investor-funded loan offer has been designed here. In the meantime, the Berlin-based fintech has discontinued crowdlending again and is focusing the company on the topic of loan comparison. However, a number of fintechs have since taken up crowdlending. First and foremost Auxmoney.
Fintech Crowdlending List Germany
- auxmoney
- Bergfurst
- Crowdcube
- Exporo
- iFunded
- Innovestment
- kapilendo
- Mezzany
- Mintos
- WIWIN
There is usually a fee for arranging the financing. In 2018, the average amount of financing was about 27.000 euros. Crowdlending is interesting for young companies, but also for private individuals who want to fulfill a major desire and need money for it.
These costs are incurred in crowdlending
As with all financing, the borrower also has to pay a fee for crowdlending. This fee is charged in the form of interest. The borrower repays his loan with interest in crowdlending, the loan rate is fixed and usually consists of a fixed monthly installment. The interest rate is determined primarily by the credit rating, so the creditworthiness of the borrower is definitely taken into account. The correlation applies that the interest rate increases slightly with decreasing creditworthiness. So if you want to finance a rather risky project, you have to expect higher interest rates. In crowdlending, the lender does not acquire a stake in the company, so he does not share in profits and does not receive a share even in the event of a sale of the company. In the acquisition of a share in the company, crowdlending differs significantly from crowdinvesting.
Fintech crowdlending – attractive financing for startups in the financial sector
Swarm financing is an option for fintechs, which can be quite interesting. Before a young company takes out a traditional bank loan, it's important to explore the possibility of crowdlending through one of the established online platforms. One must know however that the interest can be somewhat higher than with a classical bank financing. This is because a start-up company is always associated with the risk of capital loss if the venture fails at a later date. Fintechs are no exception, because although there are always new and very promising business ideas on the market, there is a risk that a fintech will not be accepted by the market as expected.
When Fintech Crowdlending comes into question
Crowdlending is always an attractive alternative to the classic bank loan for fintechs, if financing via the crowd is desired and if no participation in the young company is desired. This participation may not be wanted by the lender and is therefore excluded. But it can also be rejected by the management of the start-up if they don't want to give their backer a say in the company. This right of co-determination can be, for example, in strategic, operational or financial matters. Who wants to exclude this right of co-determination from the outset or who does not want a backer to participate in the profits, should not opt for crowdinvesting. Crowdlending is the better alternative in this case. In this way, young start-ups with business ideas from the exciting world of finance create a financial basis for themselves, which can be used as start-up financing and also for later expansion.