Crowdlending: What it is, how to invest, and everything you need to know

The financial system is undergoing unprecedented decentralization experimentation. In recent years, countless alternative financing formulas have emerged advocating taking some power away from banks to give it to individuals. This is the reason why methods like crowdlending have emerged, which is becoming increasingly stronger in Spain.

Crowdlending, also known as peer-to-peer lending, has gained popularity in Spain as it is an innovative and accessible investment alternative. It allows individuals to lend money directly to companies or individuals in exchange for interest, eliminating the need for traditional intermediaries such as banks.

What is crowdlending?

Crowdlending is a form of collective financing in which several people contribute money to finance a project or cover the capital needs of a company or individual.

Thus, it presents itself as a type of alternative financing that, as its name suggests, combines two concepts: crowd meaning multitude, and lending meaning loan. With this option, a group of savers individually finance a specific company through loans, thus avoiding the intermediation of banking entities.

In exchange for this loan, investors obtain a profit, stipulated by both parties in the contract. This is where their gain lies since, in the future, when the initial investment has been recovered, it will be accompanied by the agreed interest.

Thanks to crowdlending, entrepreneurs no longer depend on the approval of a bank or large lenders to launch their projects.

How does crowdlending work: Who participates in this alternative financing?

Once it is clear what crowdlending is and its characteristics are known, it is time for investors to consider the main participants. There are three distinct parties in the crowdlending process.

• Lender - The saver who advances money to the company takes the role of lender. They are motivated by the economic return they will receive in the future, derived from the operation's interest. Investors are people looking to multiply their wealth but, at the same time, they are not solely seeking economic return. They also aim to generate a positive impact on their environment through their capital by supporting emerging projects that need wings.
• Borrower - This is the company seeking financing, either to settle debts with suppliers or to launch their initiatives. To achieve this, they turn to small savers who provide them with liquidity. When the established period ends, they must return the originally loaned amount, paying interest and commissions.
• Intermediary - A third party is needed to connect the lender and the borrower. Investment platforms, part of the Fintech sector, play this role. Thanks to technology's potential, they create a space where users register and finance businesses aligned with their interests, forming a kind of online market. These platforms charge fees for the services provided, which fall on the company that needs financing.

What is the crowdlending process?

After understanding the basic concepts and the parties involved in crowdlending, it is important to know the step-by-step process:

1. Registration on the platform - The investor registers on an authorized crowdlending platform, such as Inversa.
2. Project selection - The investor reviews the available options and chooses which one to lend their money to.
3. Financing - Once the project is selected and reaches its financing goal, the loan is made.
4. Investment recovery - Lenders receive their interest payments according to the established terms until the full repayment of the capital.

Benefits of crowdlending

Crowdlending was created to solve the problems presented by traditional financing methods, both for people who want to invest and for organizations that need resources.

• On one hand, it allows the saver to diversify their investment portfolio. This is a very wise move as it considerably reduces the risk of facing losses. If investments are highly concentrated and one of the projects in which capital was placed is not profitable, a significant sum of money is lost. Conversely, if they have evenly distributed their assets, the collapse of a company will not have such a notable impact on their portfolio, as it will be cushioned by the rest.
• Many crowdlending platforms assess the ethical aspect of companies. Thus, the investor obtains the satisfaction of allocating their capital to sustainable projects.
• The high transparency of this mechanism based on ethical investment allows the investor to personally verify the positive impact their wealth is generating in the community and the planet.
• The transaction processing is faster and simpler than in banking. Therefore, those organizations that need liquidity urgently can access that money quickly.
• They do not depend on a single source of credit but rely on multiple investors.
• Enjoying greater flexibility to determine the contract terms also means the interest to be paid may be lower.

Crowdlending taxation in Spain

To understand the state of crowdlending in Spain, it is important to know its tax regime. Article 25 of Law 35/2006 of November 28 on the Personal Income Tax and partial modification of the laws on Corporate Tax, Non-Resident Income Tax, and Wealth Tax regulates the taxation of interest derived from crowdlending operations.

These would fall under the category of income from movable capital just like shares in companies listed on the stock exchange or interest from long-term bank deposits. In this case, they are divided as follows:

• Profits below 6,000 euros - Tax rate of 19%.
• Profits between 6,000 euros and 50,000 euros - Tax rate of 21%.
• Profits over 50,000 euros - Tax rate of 23%.

It should be noted that, generally, Spanish-origin platforms withhold this tax and transfer it directly to the tax authority. In the case of international platforms, this withholding is usually not done, and it is the investor who receives the gross interest and is obligated to report it to the tax authority.

In any case, before investing or choosing a platform, it is essential to check the platform's working method to avoid any incidents in the future. After all, as with any form of investment, there is a certain level of risk and the possibility of facing losses will always be present. 

Nevertheless, it is also important to note that these losses can be used to save money by paying taxes only on the actual profits. How? By offsetting capital gains and losses in the income tax return.

If the incomes are of the same nature, the investor can subtract their losses from the total profits. This way, they will only have to pay taxes on the interest of the resulting amount.

Crowdlending in Spain: a reliable financing method

In recent years, crowdlending in Spain has gained significant prominence. Its adoption offers countless advantages both for savers and businesses as there is no bank intervention and they can invest their assets or obtain loans more easily. And its future promises even greater growth as this alternative financing method still has much to offer.

It is, of course, an excellent alternative for those seeking to diversify their portfolios and generate returns higher than traditional ones. However, it is important to understand both the benefits and the risks before participating.

If you are one of those interested in exploring new forms of investment, platforms like Inversa offer a safe and regulated environment to make the most of this financing option. Do not hesitate to contact us; we will answer all your questions without any obligation.

Benefits of crowdlending for investors and companies

Crowdlending is, without a doubt, one of the most prominent alternatives within collaborative finance and an increasingly attractive investment method in Spain. The characteristics that make this investment model so attractive are multiple, among which the following stand out:

For investors:

• High profitability: Crowdlending offers significantly higher returns than traditional fixed-income products, such as savings accounts or bonds.
• Portfolio diversification: Allows investors to distribute their capital among different projects and sectors, thus reducing the risk of loss.
• Low entry barriers: Many platforms allow starting with small amounts, facilitating access to this type of investment.
• Transparency and control: Investors have access to detailed information about the projects they finance, allowing them to make informed decisions.

For companies:

• Alternative financing: Companies can obtain financing without depending exclusively on banks or traditional institutions.
• Agility and speed: The application and approval processes are usually faster and more flexible than those of banks.
• Visibility and reputation: By presenting their projects on crowdlending platforms, companies gain visibility and can attract new customers or partners.

How does crowdlending work in Spain?

The operation of crowdlending in Spain is relatively simple, both for investors and for companies seeking financing:

• Companies or individuals in need of financing publish their projects on specialized platforms, detailing the amount they require, the destination of the funds, and the conditions of the loan (term, interest rate, etc.).
• Investors review the available projects, analyze the associated risks, and decide in which ones they want to invest their money. The investment is usually made through participations or fractions of the total loan.
• Once the project reaches the required amount, the loan is formalized, and the company receives the funds. From that moment, it begins to pay the agreed installments (principal and interest) to the investors through the platform.

Crowdlending is already part of the present and future of investment in Spain

The development of crowdlending in Spain reflects the growing interest in innovative and participatory financing alternatives. Despite being a relatively new market, the regulatory framework, the security measures of the platforms, and the awareness of investors and companies contribute to its consolidation as a reliable option.

For investors, crowdlending offers the possibility of obtaining attractive returns while supporting business projects of various sectors. For companies, it represents a valuable opportunity to access financing agilely and flexibly.

In summary, crowdlending is already part of the present and future of investment in Spain. Its evolution promises new opportunities, but also requires a responsible and informed attitude from all the parties involved. By knowing the risks, evaluating the projects carefully, and staying updated, both investors and companies can make the most of this innovative form of collaborative finance.