Crowdlending: the new online financing alternative

by Moris Beracha

Crowdlending, the combination of "crowd": a large number of people, and "lending": that is a synonym of loan. However, would be incomplete without: Internet

Moris Beracha.- It is part of the new vision that opts for entrepreneurship as the muscle that boosts economic development

A few days ago I read in the newspaper El Mundo de España that the crowdlending platform called FundingCircle announced that its former executive director of the European Central Bank, JorgAsmussen, was joining its ranks as a member of the Board of Directors. The news caught my attention taking into account that this business model – of which little is known – is starting to take place within the financing options across the world.

The idea of ​​companies like FundingCircle surely has to do with providing a large-scale service in which small businesses access financing directly from investor groups.

Now, what is actually crowdlending? The term comes from the combination of the words crowd, meaning a large number of people and lending that is a synonym of loan. However, this term would be incomplete if we do not add that this modality of business operates through the network that unites the world: Internet.

It would have been very difficult to imagine a few years ago that a business model could exist without the participation of traditional banking and that would also involve a tool as powerful and profound in terms of accessibility as the worldwide web.

Crowdlending should then be seen as a non-bank alternative financing. It is not the only one, and that territory has been traveled through different options such as invoice trading, crowdequity, Business Angels, private equity and even what is called venture capital.

The philosophy of this business is to bring investors closer to small and medium enterprises (SMEs) that require a loan. The way to interrelate these two subjects is precisely through the online platform. In fact, if you read some information on the issue you can see that crowdlending is also called Fintech: Technological financing.

In general terms, the companies that engage in crowdlending present all their conditions on the Internet portal, that is to say, interest rates, maximum amounts of loan, the required documentation, and the guarantees. In a very short time it is known if this loan has been approved. The different investors are the ones who will provide the credit facilities.

Taking the above into account, one might think that it is a very unsafe business, and this is true. That is why it is fundamental to consider the place where the crowdlending company is based since the culture and habits to do safe business will be essential to have the best asset that is trust.

In this type of business a high caliber staff in credit analysis is required. Also, it is necessary that the technological platform be efficient enough to provide answers in a very short time and finally must own a team to attract very high quality investors.

The three elements above are fundamental for the success and continuous multiplication of crowdlendig. Otherwise, it will be an alternative that might not expand worldwide. Europe is now the place where this type of options is growing rapidly. It could be said that it is part of that new vision or branch of financial engineering that bets on entrepreneurship as the muscle that allows the promotion of economic development of the new times.

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