Posted on: 31st January 2017
While it continues to be something of a grey area for both investors and those seeking investment alike, crowdfunding is here to stay. Not only this, but it has become a very big deal over recent years and is becoming a cornerstone in the establishment and development of new businesses all over the world. Rather than seeking heavy from a few wealthy investors, the idea of crowdfunding is that those in need of capital are able to reach out to huge crowds of investors willing to chip in much smaller amounts.
And with millions looking for smaller, more accessibleopportunities, crowdfunding is proving to be extremely popular.
Whether looking to invest £5 or £50,000, there are thousands of people and businesses out there in need of financial backing. It’s usually a case of those who’ve either been turned down by major lenders or are simply unwilling to work with bigger banks looking for alternative means to access the cash they need. For the business, the benefits are obvious – simple access to capital with the kinds of terms and conditions a major lender would probably never agree to. For the investor, the ability to invest smaller sums of money in smaller businesses, which could in time lead to potentially huge returns as the company grows.
Of course, there are also unique downsides and challenges to crowdfunding which cannot be overlooked. Regulation is still something of an up-and-coming consideration, as regulators try and find workable ways and means of injecting some kind of control and security into crowdfunding in general.
There are various types of crowdfunding taking place right now – one of which being donation crowdfunding. This is where the investor simply gives money to the business or cause in question, simply because they believe in it and want to help it along. They do not ask for and will not get anything in return – it is a one-way gift, rather than anfor business purposes.
After this comes the more common form of crowdfunding, which is known as debt crowdfunding. This is where those handing any money over to the business must be guaranteed they’ll receive it back with interest. Also known as peer-to-peer lending, it’s essentially a way of investing money in the same way you might with a savings account, gaining interest at a relatively low rate but also gaining the satisfaction of helping out a business or cause you believe in.
As for equity crowdfunding, this is basically where the cash you hand over is returned to you in the form of shares in the company, or some kind of stake in it. The benefit being that however far the business grows and expands in the future, you could potentially take home limitless profits on an on-going basis. On the downside, if the company fails, you could stand to lose everything you invested. You no longer have money tied up in the business – you own part of the business.
For more information on crowdfunding opportunities, get in touch with the Haven IFA team today.