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What is crowdfunding?

7 August 2017

What is crowdfunding?

Crowdfunding is equity investment-based and is usually a way to raise capital for new businesses, start-ups or projects. Money is raised by asking companies or individuals to invest using an online platform. Benefits of investing can include receiving rewards like free merchandise, tickets to events and shares in the business.
Those seeking funding can create a profile to promote their idea or project as well as set a target of how much they need to raise on the crowdfunding website (see examples below). There is usually a time-limit to reach the target so if this target is not reached, the project won’t go ahead and investors won’t put in any money.  The platforms may extend the time to reach the target.
If you do list a project or business on a crowdfunding website, you are effectively selling your company on the market for others to share.

Current UK Crowdfunders include: 

What is peer to peer lending?

This is often referred to as loan-based crowdfunding and is usually targeted at experienced investors in businesses who are looking for decent interest rates, risks and return. 

With many small companies finding it difficult to borrow from banks, peer to peer lending is an alternative route, allowing businesses to lend to a number of other businesses and seeing better interest rates than many ISAs and saving accounts out there. 

It’s worth noting that these lenders do not hold shares in your business, therefore the business continues to stay as your own. 

Current UK peer to peer lenders (in no particular order) are:

The FCA has recently confirmed new regulations for crowdfunding to ensure consumers are protected and aware of the risks. See here for more information. Peer to peer lenders are now also regulated by the FCA

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