Crowdlending, crowdfunding, crowdinvesting – what's the difference?

The direct lending and borrowing of money is now a permanent fixture in the Swiss financial market. The crowd is everywhere: crowdlending, crowdfunding, crowdinvesting. But what are the differences? We shed light on the jungle of terms.

What is crowdlending?

Crowd translates as “crowd of people”. In the world of finance, it refers to several private or legal persons. Crowdlending means that these people jointly lend money to another private individual or a company, i.e. grant a loan. Online credit marketplaces such as lend.ch make crowdlending unbureaucratic and fast, as no bank is required. They act as an intermediary between lenders and borrowers. (See also: How does crowdlending work?).

Because several lenders (at LEND we call them investors) raise the loan amount, risks are shared and minimized. In addition, the intermediaries prepare a comprehensive credit assessment and review for each project. As soon as enough investors have been found, the loan is approved and paid out. The borrower then gradually repays the borrowed money to the crowd, plus interest. The interest results in a return for the investors. The loan brokerage platform also manages the payment transactions.

Instead of crowdlending, other terms are used almost synonymously:

• Peer-to-peer lending (or P2P lending): Loosely translated ‘money lending from person to person’. An increasingly common sub-term is P2B lending, an abbreviation for peer-to-business lending, i.e. the granting of loans to companies (e.g. SMEs).

• Social lending: The term is based on terms such as ‘social media’. It is usually simply used as a synonym for crowdlending. In individual cases, it refers to the granting of loans as small or micro loans to entrepreneurs in developing and emerging countries. The main focus here is on supporting the borrower's work, rather than a profit motive.

• Marketplace lending: This term emphasizes the place where money is lent. The crowd meets on the digital marketplace, so to speak, and negotiates financial transactions. lend.ch is therefore a marketplace lending platform.

What is crowdfunding?

In common parlance, crowdfunding means that the crowd finances a project or the manufacture of a product. This means that money is not lent, but made available on a permanent basis. As a rule, investors receive a ‘thank you’ in return, for example a copy of the product that is being manufactured. However, a return service is usually not guaranteed. The largest and probably best-known online platform for crowdfunding is Kickstarter.

The main difference between crowdfunding and crowdlending is that the loan is repaid. There are clear rules for this, such as fixed loan terms and interest rates. The repayment instalments are often also secured – in the case of LEND, for example, through instalment default insurance.

Source: Crowdfunding Monitor of the IFZ

In the literature, crowdfunding is also defined as a generic term for all forms of collecting money via the internet. For example, in the Crowdfunding Monitor. The individual forms of crowdfunding are categorized according to the type of consideration. A project for product financing on Kickstarter, for example, is called crowdsupporting according to this definition.

And crowdinvesting?

Crowdinvesting is a form of crowdfunding in which investors participate financially in the success of the project. The more successful the project, the higher the return for the investors. The investment takes the form of equity or a mixture of equity and debt capital (mezzanine capital). However, the crowd nature of the investment means that good returns can be achieved even with comparatively small amounts. Crowdinvesting is a German neologism. Internationally, the term ‘equity crowdfunding’ is used instead. Crowdinvesting is used to successfully finance start-ups, small and medium-sized enterprises (SMEs) and property, among other things.

Modern ways of investing and borrowing money

Crowdlending, crowdfunding and crowdinvesting are all exciting investment opportunities without a bank. At the same time, they offer start-ups, SMEs and private individuals modern opportunities to realize their ideas. And at LEND, that means better interest rates for everyone.

A Swiss bank account is required to become an investor.