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Crowdlending: Democratizing loans

Blog
17 November 2022
Crowdlending: Democratizing loans

Loans are financial products that have transcendental importance for the functioning of our economy. Through loans, both families and businesses can satisfy their liquidity needs. Whether it is because they have to deal with unforeseen circumstances, because they want to invest or because, as is popularly said, in the business world money is needed to make more money. For this reason, the rise of crowdlending platforms is of enormous social and economic importance, as it contributes to democratizing loans and facilitating access to them for individuals and small businesses, but also allows savers to bet on these products to get a return on their money.

The digital revolution we have experienced over the last few decades has democratized access to technology. Today, the vast majority of the population has a smartphone, internet use is absolutely widespread and most businesses are betting on the advantages and potential of the digital economy.

Well, the emergence of FinTech, innovative projects that combine powerful technological developments with the field of finance, has also made it possible to democratize loans and other financing and investment products and services. Alternative financing marketplaces have thus opened up a new catalog of possibilities for companies and individuals who need financing and small savers who want to invest their money.

In this article, we will explore how crowdlending is helping to democratize lending and offer solutions that fit the needs and objectives of SMEs and investors.

P2P and P2B Crowdlending: People investing in people and businesses

Crowdlending, as the concept itself makes clear, is an online alternative financing model whereby multiple investors finance a company or individual through a loan.

Although there are other types of crowdlending such as real estate loans, the two main variants are P2P crowdlending and, above all, P2B crowdlending.

P2P crowdlending refers to peer-to-peer lending. That is, between one person and another. So the investor is a person who decides to finance another person by employing a loan. The borrower will have to pay back the money granted and, in addition, pay the interest on the loan, which will go to the lender or investor.

Whereas P2B crowdlending revolves around peer-to-business lending. Through these collaborative loans, multiple savers can finance a company by agreeing to a loan. This form of crowdlending is playing a key role in democratizing lending and helping businesses to finance themselves in the short term and expand their avenues for liquidity beyond the traditional banking system.

Democratizing lending to broaden financing channels for people and businesses

Long gone are the days when every village had bank branches of multiple financial institutions. The banking concentration experienced so far this century has reduced the number of players in the sector and, with it, the range of financial products on offer.

In contrast to the tendency of the banking sector to concentrate business in a few institutions, which became more acute after the 2008 financial crisis, the emergence and growth of crowdlending platforms opens up new possibilities for democratizing loans.

These marketplaces not only offer alternative products to those of the traditional financial system but also open the door to new investors. They make it possible to establish relationships between companies in the real economy and savers, outside the rigid mechanisms of traditional institutions.

If personal computers democratized the use of information technology, making computers a commodity present in almost every home and business, crowdlending marketplaces serve to democratize lending, making it easier for individuals and companies to contract these products and be financed by multiple investors.

Support personal, professional, and business projects that need money to grow

We have been accustomed to borrowing money since we were children. In the analog world, children lent each other marbles, toy cars, or dolls. And in the digital world, video games. These informal loans, in which nothing was asked for in return, allow us to appreciate how intricate the concept is in our way of life.

As adults, we discover that loans are key funding mechanisms to get many of our projects off the ground.

Unfortunately, not everyone has the liquidity they need to get their projects off the ground. Whether it's studying for a degree or a master's degree, starting a business, investing in new technology for a company, or expanding into other markets.

In these situations that we all go through at some point, loans come into play. We obtain money to be able to materialize our plans and implement the decisions we have made. All this will allow us to increase our cash income and thus repay the amount of the loan and pay the interest on the operation.

By democratizing loans, crowdlending enables more companies and individuals to obtain liquidity and provides them with financial products that meet their needs and objectives.

In this way, crowdlending platforms become levers to encourage economic growth and the consolidation of professional and business projects, which in turn generate wealth.

Crowdlending: Democratizing loans

More investors and greater investment autonomy

In the different types of crowdlending, who supports individuals and companies in obtaining financing to carry out their projects? Thousands of small investors

This is a huge paradigm shift that helps democratize lending, both in terms of the actors who can apply for loans and in terms of the type of savers who can invest their money and become lenders.

Alternative financing platforms such as Inversa Invoice Market establish a minimum amount of money to start investing.

In the case of our marketplace, savers can use their money to support businesses and achieve a return starting from as little as 20 euros.

In this way, alternative financing platforms achieve two key objectives when it comes to democratizing loans in particular and investment in general:

  • Increase the number of people who can invest and become lenders
  • Increasing the level of autonomy of investors, who independently decide which projects they want to trust when investing their money.

How do FinTechs achieve this? Thanks to their marketplaces, which are extremely easy to use and display all the information necessary for savers to deliberate on which projects they wish to invest their money in. From the type of project to its rating, including, of course, the interest on the operation and the repayment period for the money invested.

Making the most of savings by investing in companies in the real economy

In light of what we have just discussed, we can see that one of the keys to crowdlending is that it combines, on the one hand, all the benefits of alternative financing for companies in the real economy. And, on the other hand, the keys to ethical investment. That is the desire of investors to devote their money to projects with which they share values and objectives and which have a positive impact on the local socioeconomic fabric.

Unlike other forms of alternative financing, crowdlending perfectly combines this ethical dimension with the obtaining of economic benefits.

Thus, democratizing loans can be a transcendental step towards ethically responsible investment and, at the same time, allow small savers to access financial products and make the most of their savings.

In this way, a small investor can make his money profitable and, at the same time, support companies in the real economy, innovative projects, and businesses that respond to his motivations, desires, and vision of the world.

In short, by democratizing loans, crowdlending marketplaces are helping thousands of companies to obtain liquidity in the short term to grow and consolidate in an increasingly complex and fast-paced world while providing small savers with the possibility of investing their money independently and increasing the savings they have worked so hard and hard for.

Alternative Financing companies crowdlending ethical investing investors loan savings
Inversa Team
Inversa Team

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