Crowdlending, or crowdfunding by the loan, is an alternative mode of financing that began a year ago in France. It is based on the lending of individuals to small businesses . A new phenomenon that offers great prospects for both French small and medium-sized businesses and financers.
If this new method of financing proposes alternatives to those of banks, the two systems can be complementary. Explanations.
With 85.2 million euros invested in the first half of 2015, crowdlending becomes a serious and viable solution for companies. Individuals are also winners, thanks in particular to attractive interest rates (ranging from 3 to 12% depending on the platform and projects). Derived from crowdfunding, crowdlending offers a new perspective to the world of finance.
In France, more than 9 out of 10 companies are very small, small or medium-sized enterprises. These 3 million VSEs / SMEs have of course resort to banking services, both for their current operations and for their financing. The SME-bank relationship is also a major focus for the entrepreneur’s success . A bank that will “follow” the business can be a great help in times of change.
Banks have become accustomed to intervening upstream, during and downstream of operations. They advise companies on financial arrangements, the choice of instruments to use and the potential costs. For these reasons, they remain the first contact for SMEs.
The size of the structure plays a role in the demand for bank financing : the smaller the company, the more dependent it is on the goodwill of the bank. The main criteria for granting a loan are the financial health of the company, its sector of activity (if it is risky, or unknown, they show more reluctance) and the nature of the project in question.
Crowdlending intervenes in this complexity of the system as a simple and effective solution for the benefit of SMEs. It shortens the path of funds between financier and manager. This “disintermediation” reduces costs.
Financing requirements usually start at 5,000 euros and can reach up to 1 million euros. Once the sum is raised, the platform takes a commission and pays the funds to the SME within 6 to 10 days. The SME then agrees to repay monthly, with an interest rate set at the beginning of the operation.
This method of financing is more direct than the banking system. But the requirements of seriousness are similar or superior to those of the banks. Indeed, platform experts look at both the financial situation but also the seriousness of the leaders and the project itself . One of the most important reluctance of SMEs to use crowdlending lies in its “novelty”: there is no history of performance in France. However this mode of financing is promised a good future because it gives good results in the countries. For example, the funding hub Funding Circle has already funded £ 862 million.
Crowdlending offers alternative financing to that of traditional banks: financial institutions quickly seized the phenomenon to make it their ally. The Anglo-Saxon banks were the first to react. Notably Barclays in New York and London, which has come closer to these innovative platforms for a more or less close collaboration .
The crowdlending belongs to the family of Fintechs. The link between Fintech and Bank goes far: the banks plan to outsource some of their activities to these start-ups. These new companies are starting to advise them on creating products that may be of interest to a whole generation of digital natives.
This collaboration makes sense when we know that the two types of funding do not have the same constraints. For example, while delays in obtaining bank loans can be counted in quarters, a loan by crowdlending can be obtained within 30 days.
For entrepreneurs, there are many ways to get financing today. Banks and platforms coexist on a daily basis in the financial market, in the interest of SMEs. Everyone must find the financing that will best suit them, depending on their structure but also the timing and nature of the funding requirement. Crowdlending allows businesses a simplified and fast transaction . It’s a great way to fund an innovative project that can appeal to funders. It can also support specific needs in cash or to finance a concrete investment . The banking system, on the other hand, offers flexibility in terms of financing and repayment, but will be less flexible in granting the loan.
It seems that in 2015, the world of finance is changing for the benefit of French SME managers. In England, the government and banks are already investing in crowdlending platforms. The Anglo-Saxon countries are always more avant-garde, but France is gradually taking the step and thus adapts itself to the needs of small and medium-sized enterprises, real spearhead of its economy. The most innovative projects, which sometimes encountered the reluctance of the traditional banking system, will thus have new opportunities for their financing needs. Any French SME should therefore carefully consider the possibility of using crowdlending platforms.