Crowdfunding: what is it and what are its advantages?

Have you ever wondered how you could easily increase your capital? One way to earn money is by investing. You can invest in shares, bonds, other securities, or specific real estate properties, or choose to invest alone or as a co-investor. Probably the safest and easiest way to earn extra money from investments is crowdfunding. Compared to other investment instruments, it is a relatively new but effective way of both lending and borrowing. In this article, we would like to give you a better idea of what crowdfunding is, its types, advantages, risks, and where to start to become an investor.

 

What is crowdfunding?

Crowdfunding is one model of fundraising where a large number of people contribute (invest) money. The basic principle of crowdfunding is to allow people to lend their own money in small amounts and in relative safety for the implementation of selected projects or ideas. For the people who invest the money, it is a great way to earn extra income from the interest earned, and for the recipients of the funds, it is a quicker and easier way to borrow money than traditional financial institutions. 

Today, crowdfunding in Lithuania is available online for both borrowers and investors. Those wishing to borrow for various business purposes or projects can do so from the comfort of their own home by completing an online application. Investing is quick and easy, using both a computer and a smartphone, and you can invest just a few tens of euros!

The crowdfunding model is a relatively recent development. The first project was the launch of ArtistShare in 2001. It is a website that is still in operation today, where musicians raise funds from their fans to realize their ideas. However, on this platform, funding is not based on monetary rewards, but on gifts of appreciation and privileges. This model has since been slightly modified and adapted to a wider audience. Today, people from all over the world can participate in the funding process.

Crowdfunding platform: what is it?

A crowdfunding platform is a company that provides crowdfunding services and acts as an intermediary between two different parties: the businesses seeking funding and the investors who want to put their money to work. Currently, online platforms that offer to invest in loan finance for property development and other business ventures are gaining the most attention. These platforms act as an intermediary: they search for, select, and offer investors viable business, real estate, or other projects that appear credible and have a relatively low-risk profile. On such platforms, people can contribute as little as €100 to a project or idea and earn money. However, the platforms also attract the attention of experienced investors who invest several hundred thousand euros in projects

Investing through crowdfunding platforms is reliable and quite safe, and most importantly, you get to choose the amount you want to invest, the term of the investment, the interest rate, and even the project you invest in! Crowdfunding platforms vary according to how the projects are funded. For example, Profitus allows you to invest at 8-12% annual interest in loans for specific real estate (RE) properties. It is possible to invest selected amounts starting from as little as €100, which will be secured by the real estate. Other platforms may offer investments in other types of businesses or even ideas. All Profitus investors receive a mortgage on the real estate in exchange for their investment. A mortgage is a type of loan security where the amount borrowed is pledged against the assets of the project or idea developer, in this case, real estate (this pledge comes in handy when the borrower defaults and becomes insolvent. In this case, the pledged property is repossessed and sold and the proceeds are used to pay the investors).

 

 

Types of crowdfunding

Crowdfunding can bring more than just financial benefits to investors. In other words, people may not necessarily receive a financial reward for their investment. Globally, crowdfunding is divided into four main types according to the nature of the rewards.

Debt crowdfunding is a type of financing in which investors lend money and receive a fixed investment return (interest).  
Equity crowdfunding is a type of financing where investors receive an equity stake in the financed project as a reward.  
Reward crowdfunding - where the investment is usually in return for a non-financial reward (a service or product).  
Donation crowdfunding is a type of financing where there is no reward for the investment. This type of investment is typical of non-profit organizations.  
Different funding platforms may use different types of remuneration, so before investing, always check whether you will get value for money and, if so, what it will be.

 

Benefits of crowdfunding

The growing popularity of crowdfunding is no coincidence. It's a great way not only to invest but also to borrow when needed. For both borrowers and lenders, there are many advantages to choosing this type of investment and financing. Crowdfunding for real estate projects or other businesses can allow them to expand and for investors to earn a return. This great alternative to traditional financing instruments is beneficial because:

For investors

• allows investors to participate in a wide range of projects and to contribute to the financing of exceptional projects;
• it is a relatively safe investment (when investing on crowdfunding platforms, your investment is often secured by real estate or other assets); 
• it is a stable investment that allows you to invest and earn as much as you want;
• allows you to choose the duration;
• allows you to choose the investment property you like and the return (interest rate) it promises;
• no need to have a large capital, you can invest as little as €100;
• it is an excellent form of passive income;
• offers a steady and asset-backed return.

for the beneficiaries:

• makes it easy and simple to borrow up to €5,000,000;
• offers favorable borrowing conditions;
• provides funding;
• Quick access to the amount needed;
• easy to solve financial worries or implement projects;
• helps to predict the credibility of a project idea (investors tend to allocate their funds to those

 

 

Crowdfunding risks

Like other types of investment, investing through crowdfunding platforms has its risks. No one can guarantee that a particular project will be successful - sometimes the opposite happens. However, crowdfunding is aimed at small and medium-sized businesses and is therefore a major focus. According to the regulation, the amount of funding available to small or medium-sized businesses or to a single owner of several businesses is limited. Hence, the law on crowdfunding protects investors from high risks and avoids failures. In addition, it should be borne in mind that certain crowdfunding platforms protect investments with real estate or other assets, shares, and bonds so that even if a project fails, it is possible to recover your investment. 

 

Crowdfunding in Lithuania

Crowdfunding in Lithuania is becoming increasingly popular, not only among those who want to invest but also among those looking for the most suitable borrowing opportunities. Crowdfunding platforms offer highly flexible and favorable conditions for borrowing for business development or other projects. Various crowdfunding platforms aim to raise funds from the public and invest the money they borrow in various amounts in various projects. This type of borrowing is most suitable for small and medium-sized businesses.

Crowdfunding can be for:

• artistic or creative activities;
• cultural projects;
• business development;
• new business start-ups;
• contingency funding;
• finance for non-profit organizations as needed;
• money for other purposes or ideas.

 

How do I become an investor?

Becoming a crowdfunding investor is easy. You don't even have to leave home to put your money to work! All you need is a computer, phone or tablet and the internet! Once you have decided to invest, all you have to do is choose a specific investment platform, register, provide the necessary details and information about your financial options, analyze the projects on offer, and choose the one you want to invest in!