Participatory financing or "crowdfunding" allows project leaders to raise funds from a community of funders through a dedicated platform. In concrete terms, the term crowdfunding alone encompasses 3 different forms of participatory financing: donation, loan and equity participation. Let's take a closer look at these 3 modes of crowdfunding.
Participatory financing by donation
Donated crowdfunding is the most common form of participatory financing. It can generally take two different forms. More concretely, the donation in question can either be disinterested, or more precisely without consideration, and is sometimes accompanied by tax advantages, or it can give rise to a reward, a gift or an order. The first is mainly based on the principle of giving without consideration, also known as "crowdgiving". The latter is more altruistic and philanthropic in nature, as it is more akin to patronage as well as donation. This form of participatory financing is less effective when it comes to financing a business. Instead, it is intended for charitable projects initiated by private individuals. It is therefore NGOs and charities that are most concerned by this type of financing.
As for the second, it is rather called "rewared-based crowdfunding" or financing without any financial counterpart. Here, investors take charge of financing a project. In return, the project leader must reward them with a service or an object. It should be stressed that this type of financing concerns both companies and individuals. Unlike charitable crowdfunding, it is more relevant for financing an entrepreneurial project. For more information on crowdfunding, visit this site.
Crowdlending or equity loan
Crowdlending is the most recent form of participatory financing. While banks used to be the only ones entitled to grant loans, the emergence of the equity loan has removed this banking monopoly. Each project promoter can then be granted the funds needed to finance their project without having to turn to banks. Nevertheless, such a method of financing is rigorously controlled and more restrictive: each investor cannot invest more than €2,000 (crowdlending with interest) or €5,000 (crowdlending without interest) in the same project, the total loan is capped at €1,000,000, repayment period of 7 years maximum, interest rate fixed beforehand. The principle of crowdlending is therefore very simple: through a dedicated platform, project owners offer individual investors the opportunity to invest in their projects in the form of a loan. As soon as they reach their financing threshold, these project holders will be able to repay each investor who has supported their projects.
Today, there are two forms of equity loans: simple loans, which are an alternative to bank loans, and minibonds, which are intended to be more flexible than traditional loans. It should be noted that minibons are cash vouchers dedicated exclusively to equity loans. The maximum repayment period is 5 years with an interest rate with interest. The added value of this form of crowdlending lies in the fact that it does not require any investment ceiling.
Crowdequity or crowdfunding in shares
Also called "equity crowdfunding", crowdequity or equity crowdfunding is a form of financing that allows investors to fund unlisted companies and start-ups in exchange for access to their capital. Following the example of "Business Angels" or "angel investors", investors, in the context of an equity investment, become shareholders. As such, they are entitled to dividends based on the performance of the structure and also to capital gains on the resale of their shares.
The main advantage of this form of equity financing is that project promoters can call on investors with significant investment capacity. Crowdequity is a real springboard for the financing of start-ups, SMEs and VSEs. Here, funds are also raised via dedicated platforms, which means that project leaders can free themselves from the traditional bank financing circuit.
