“Credit Crunch” and “Banking Crisis”. It started as banks across the globe lent too much money, too quickly and in many cases the loans then defaulted or had insufficient security attached to them. So, rather like a pack of cards the whole banking infrastructure started to collapse like a domino effect. Banks had insufficient capital to meet liabilities and governments had to step in to support banks.
The UK PLC has turned the corner. Interest rates remain at historic low, (Great for Borrowers & Devastating for savers and companies with cash held on deposit) business confidence is increasing of companies looking to invest in new equipment and infrastructure.
Crowd Funding how does it work? Typically an on-line lending platform (an intermediary such as Funding Circle or Funding Knight and various others) will bring borrowers together with investors. This is done by the borrower (an SME/owner) approaching the investors for a loan via an internet platform. An application for a loan is submitted via the P2P platform, (in much the same way as you would approach your bank manager for a loan). The borrower will have to outline their business’s background; the company must explain what the business does? Why it is profitable? How much it needs to borrow? The crowd funder will prequalify the application at the outset for validation.
How long the company requires the loan? financial information has to be provided, to include the last year accounts. A simple application form at the outset.
The borrower’s loan request will then be looked at and assessed by the Crowd Funder “in house” funding team and if the Crowd Funder can see a viable business and a clear “ability to repay” the loan, it is then advertised on the P2P website for investors to “bid” on. Investors are typically private individuals looking to earn a better return than they are currently receiving for funds held in a bank deposit/savings account. Once the loan request goes “live”, investors can bid amounts of typically £10 and upwards. They can also indicate what percentage return they want for their investment (subject to minimum bid rates suggested on the web portal and set by a “risk weighting” assigned to the borrowers business by the intermediary). The better the businesses financials are, the lower the minimum bid rate and therefore the lower the overall interest rate/borrowing costs. They (investors) can also ask the prospective borrower questions about their business or its financials, the borrower then having a choice whether to reply or not (it is advisable to do so!).
Once the loan is 100% funded, the borrower can elect to close the bidding and start the process of drawing down their loan. Alternatively, they can keep the bidding open in the hope that new investors lower their bid rates, remove the higher rate bidders and thus reduce the overall loan cost/interest rate.
The Crowd Funder platform provider will then take their “fee” from the loan amount with the borrower then signing the loan documents before the balance of the loan is deposited into their business account. The Crowd Funder offers Secured and Unsecured Funding.
Worthy of note is that each individual investors name is listed on the loan document that the borrower signs, in my experience, this can be in excess of 200+ investors for any one loan!
Crowd Funding – Fast Business Loans can be used for any purpose.
Great Alternative to Traditional Banking and Finance Companies.
Onwards and Upwards!
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