The banking industry has been battered in recent years and a consequence of this is the emergence of crowdfunding as a viable source of finance for many individuals and businesses seeking investment. The days where entrepreneurs would draft a business plan and submit it to their local bank manager are largely over and the age of the Internet means that lenders can come from any part of the world.
Banks are under increasing pressure from shareholders and regulators to ensure that their investments generate strong returns and are secure. The tightening of regulations governing lending has meant that many projects do not fit the criteria set by traditional lenders. Crowdfunding is a refreshing alternative that is available in the market. Borrowers still have to submit business plans that show a viable lending opportunity but the risk associated with lending can be spread across multiple lenders who are likely to be private investors.
Crowdfunding is a business opportunity for lenders but it combines the notion of allowing investors to do something different and give something back to business with the possibility of an investment realising a greater rate of return than if money was left in the bank. There are many well established models in the crowdfunding industry, a notable example being the www.fundingcircle.com .
The advance of social media means that news of exciting projects can be spread amongst like minded investors very quickly. Crowdfunding companies can quickly attract investment for specific projects by simply displaying the opportunity online. Investors are out there, from the large-scale entrepreneur to the curious investor just seeing if they can earn a better rate of return. Collectively these people can offer a package that the banks cannot put together. Plans must still demonstrate that repayments can be made and the cost of finance may be higher than traditional sources of finance. For many borrowers crowdfunding is the only way their ream can become reality so there will always be a place in the market for this innovative and exciting form of finance.