P2P Lending and Crowd investing platforms. Any good?

P2P lending and crowd investing

P2P Lending and Crowd Investing: do they make sense?

P2P lending and Crowd investing are “alternative” investing vehicles. Their widespread success and popularity in the last 5-10 years derives from several factors:

1) Strong development of the Fintech sector

2) Current technology and regulations allow and facilitate the development of innovative financial services

3) The sub-prime financial crisis back in 2007/2008 created interest in alternative and complementary investment models (besides the stock market).

4) Younger generations of investors are looking for innovative and alternative sources of passive income  

5) The technology enables even small deposits  (10, 50 or 100 EUR)

About P2P lending and Crowd investing, both models present platforms that raise funding for individuals or businesses in exchange for interest payments or equity shares. In both cases, money is provided by investors (directly or through local financial providers) to recipients who need the capital.

In both cases, investors are looking for returns.

  • Crowdfunding/Crowdinvesting:
    • It gives investors an equity stake in the project
    • The investors take ownership of part or all of the project. There is often a strong interest in the type of project.
    • Because crowdfunding is an equity investment, the returns are often open-ended. If the project or business thrives, the investors benefit as they own shares. Similarly, if the project fails, they may lose their capital. This is the nature of equity investing. The returns are performance-related
    • It lasts as long as the investor holds shares: it can be forever or until they choose to exit and sell the shares.

  • Peer-to-peer lending (P2P):
    • It is a loan; the borrower will repay the money, plus interest, but no shares are involved in the deal
    • The commercial activities of the borrower are often irrelevant, so long the loan is repaid
    • It  is a loan with a fixed rate of return
    • Peer-to-peer tends to be for a finite period, usually one to five years. Once the loan is repaid, the relationship ends.

 

Both P2P lending and crowd investing complement classic investments like real estate and the stock market. For more information on similar platforms, visit my Investing Platforms page, where I share details and reviews of my investing platforms. 

If you like the article on P2P Lending and Crowd Investing, check out other Financial Wisdom in my Archive, YouTube videos, and Audio Podcasts.

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