Crowdfunding, Crowdlending, and Crowdfactoring. What each one entails and how to differentiate them.

To better understand these terms, let's start by defining CROWDFUNDING, a combination of two English terms, CROWD (multitude) and FUNDING (financing), which is nothing more than “A form of collective financing of projects of various kinds". These are also known as Plataformas PFP (collective financing platforms) or P2P lending (peer-to-peer lending).

• There are three common actors in all cases:

• The one who needs resources. It can be an individual or a legal entity seeking funding.
• The one who has those resources.
• The one who brings them together (platform). The platform provides its technology, know-how, and experience acting as an intermediary.

There are also differences that determine various types of crowdfunding:

• Donations, without expecting anything in return other than the satisfaction of helping.
• Reward-based, which can vary greatly but is never monetary.
• Equity participation in business, receiving a number of shares in return (crowdequity).
• Loans, money that must be repaid with interest. The latter is known as crowdlending.

We can therefore define CROWDLENDING, a combination of CROWD (multitude) and LENDING (loan) as “A modality of crowdfunding where a multitude of investors lend directly to individuals and companies in exchange for profitability”. It becomes an alternative form of financing and investment.

But there are also different types of crowdlending, especially depending on whether it finances short, medium, or long term. Thus arises CROWDFACTORING as “A modality of crowdlending that finances invoices of freelancers and companies in the short term, providing liquidity for day-to-day operations”.

Who can invest in Crowdlending, Crowdequity, and Crowdfactoring?

The PFPs are mainly governed by Law 5/2015, of April 27, on the Promotion of Business Financing. The types of participatory financing regulated by this Law are Equity and Lending only (Crowdfactoring does not require any authorization as it is not considered a loan).

Among other things, this law establishes in Article 81 the difference between accredited investors and non-accredited investors. By default, every investor who registers on a platform in Spain is considered a non-accredited investor, meaning:

• They have investment limits of €3,000 per project or €10,000 annually across all platforms.
• They cannot use automatic investment systems (they must invest manually).

In contrast, accredited investors have no investment limits. To be considered an accredited investor as an individual, the law establishes that one of these requirements must be met:

• Having annual income exceeding €50,000.
• Having a financial net worth exceeding €100,000.
• Having contracted financial advisory services from an authorized investment services company.

Law 5/2015 does not establish any procedure to become an accredited investor - it only establishes the requirements - so each platform applies its own verification procedure.

Investing in Crowdfactoring does not impose any limits on the investor, as it is not considered a loan and is not subject to Law 5/2015. Any individual of legal age or legal entity holding a bank account in Europe can invest in Inversa from €20 with no maximum limit established.