What is crowdlending and how does it work?
Crowdlending, also known as peer-to-peer lending, is a form of financing in which loans are arranged directly between borrowers and a large number of private investors, often via an online platform. This approach enables borrowers to obtain financing independently of traditional banks and offers investors the opportunity to invest in individual projects or companies.
In Switzerland, where crowdlending is still relatively new compared to other countries, interest is continuously increasing. A number of leading platforms are shaping the growing market by offering innovative solutions for lending between private individuals and companies. The legal framework in Switzerland focuses on safeguarding the interests of both investors and borrowers.
This regulatory focus creates a stable foundation that is crucial for the future growth and development of the crowdlending market in the country. An essential aspect of this framework is the reliable verification of borrowers, in which the tax identification number in Switzerland plays a key role.
What types of crowdlending are there?
Crowdlending in Switzerland is presented in two striking variants: loans to private individuals and loans to companies. Each of these categories is characterized by specific features and platforms that have been developed specifically for the needs of their target groups.
1. Peer-to-peer lending (P2P): Focus on private financing
At the heart of peer-to-peer lending are the individual financing needs of private individuals. This form of crowdlending is ideal for those who want to finance personal projects such as the purchase of a new vehicle or the realization of a dream vacation. Through innovative crowdlending platforms such as Cashare, lend, CreditGate24 and lendora, the traditional loan process is being reinterpreted. Here, the financial needs of individuals are linked with the willingness of private individuals to invest who are ready to provide their funds.
2. Peer-to-business lending (P2B): Rethinking corporate financing
Peer-to-business lending opens a new chapter in corporate financing. Although the term P2B lending is less common and is often subsumed under the more general term P2P lending, it represents a distinct category. Here, companies, regardless of their size and legal form, appear as borrowers. The financing purposes range from investments and refinancing to specific project financing or business acquisitions. In addition to private investors, institutional investors are also increasingly contributing to financing. Platforms such as creditworld, neocredit and swisspeers are pioneers in this field and offer tailored solutions for the needs of modern companies.
Who is crowdlending suitable for?
Crowdlending is becoming an increasingly attractive option for small and medium-sized enterprises (SMEs) as well as for self-employed individuals who are looking for alternative financing options outside the traditional banking sector. This form of financing is characterized by its flexibility and often more favorable conditions compared to conventional bank loans. In particular, for companies that need fast or project-related financing, crowdlending can provide an efficient and straightforward solution.
In addition, crowdlending opens up a promising opportunity for investors to diversify their investment portfolio. This is especially true for those who are looking for new ways to invest their funds while potentially achieving higher returns compared to traditional forms of investment.
By investing in different projects and companies, investors can not only generate financial returns, but also contribute to promoting innovation and the growth of smaller companies. Crowdlending enables investors to invest directly in the real economy while gaining transparent insight into the use and impact of their funds.
Advantages of crowdlending
- Efficient and fast source of financing: Both private individuals and companies benefit from quick access to financing through the digital platforms used in crowdlending. Requests are often processed within a few days, and the 24/7 availability of the online infrastructure makes the process even more efficient.
- Competitive interest rates for both sides: Borrowers pay interest that is based on their creditworthiness and is often competitive. The interest, minus a brokerage fee, goes directly to the investors, providing them with fair compensation for the risk they take.
- Investment with added value: Investors gain access to a new asset class that was previously difficult to access. The high level of automation enables investments in areas such as SME loans. Investors can independently decide whether they want to invest in the growth of an online retailer or in a couple’s dream vacation.
Disadvantages of crowdlending
- Uncertainty of financing: Unlike traditional lending, there is no guarantee that a crowdlending project will ultimately be financed. Even though platforms such as lend, swisspeers or Cashare show a high success rate, financing depends on investors’ commitments and is not one hundred percent certain.
- Credit default risk: As with any form of investment, there is also the risk of loan default in crowdlending, which in the worst case can lead to over-indebtedness. This risk depends on various factors, including the collateral provided and the possibility of financial restructuring. A diversified portfolio is therefore strongly recommended to spread the risk.
Is crowdlending safe?
Crowdlending offers an innovative and increasingly popular way to invest money. Unlike traditional bank investments, capital is lent directly between private individuals. This type of investment is facilitated by digital platforms, making the process fast and efficient.
Security mechanisms such as credit checks on borrowers and the spread of capital across multiple projects help to minimize risk. Nevertheless, it should be noted that, as with any form of investment, there are risks, particularly the default risk of the borrower.
Borrowers and their reasons for crowdlending
Companies from a wide range of industries and of all sizes are increasingly turning to crowdlending to cover their diverse financing needs. The main reasons include:
- Growth financing: Many companies use crowdlending to finance expansions. This may include opening up new markets, expanding production capacity or developing new products. Crowdlending enables these companies to respond quickly and flexibly to growth opportunities without having to commit to long-term traditional credit agreements.
- Covering working capital needs: Working capital is essential for day-to-day business operations. Companies use crowdlending to bridge short-term liquidity bottlenecks, compensate for seasonal fluctuations or remain able to act in times of declining sales. Through crowdlending, they can react quickly to unforeseen financial needs.
- Financing specific projects: Special projects such as the introduction of a new technology, research and development activities or environmentally friendly initiatives often require additional funds. Crowdlending offers a tailored financing solution that enables companies to implement these projects without the restrictions of traditional forms of financing. Numerous case studies demonstrate the effectiveness of crowdlending as a financing instrument, particularly for innovative and growth-oriented companies. This form of financing not only offers speed and flexibility, but also enables companies to build a direct relationship with a community of investors who are interested in their vision and success.
Investors: Multi-layered return potential in crowdlending
Crowdlending offers investors attractive return opportunities that often exceed those of traditional savings products. However, these return potentials vary depending on the type of project, the creditworthiness of the borrowers and the term of the loans.
- Variability of returns: The potential returns in crowdlending depend on various factors, including the type of loan, the risk profile of the borrower and market conditions. While higher returns are often associated with increased risk, crowdlending platforms generally offer a broad range of investment options that allow investors to find a balance between risk and return.
- The importance of careful project selection: A well-founded selection of investment projects is crucial to optimizing the risk-return ratio. Investors should carefully analyze the various projects and the creditworthiness of the borrowers in order to make an informed decision. Many platforms offer detailed information and ratings on each project, which supports the selection process.
- Risk management: An understanding of the risks associated with crowdlending – such as the risk of loan default – is essential for investors. Diversifying the portfolio by investing in different projects and sectors can help to spread risk and minimize the impact of potential loan defaults.
- Social and economic impact: Many investors see crowdlending not only as a way to generate returns, but also as an opportunity to have a positive social and economic impact. By financing SMEs, innovative projects or sustainable initiatives, investors can contribute to supporting the real economy and promoting social values.