Crowdfunding platforms gather various investments requiring projects and investors into one place. The number of such crowdfunding platforms is growing, so we will explain what it is and how crowdfunding differs from other investment types.
Constantly attracting new investors’ attention, crowdfunding started to gain popularity among investors one decade ago. According to the Statista Research Department, the crowdfunding market was valued at € 11,5 billion in 2019 and was forecasted to triple by 2026. Crowdfunding popularity in Lithuania is also growing-rapidly – according to the Bank of Lithuania, fully funded crowdfunding projects value was € 9,13 million in the first half of 2020.
What is crowdfunding?
Crowdfunding is a model of fundraising, where investments are provided by many single individuals. Investors could be both individual and legal people, and one project could be funded by hundreds or even thousands of different investors.
The main purpose of investments is to collect the needed amount of money for business projects. Such projects should have a clear plan of how the funds would be allocated. All raised the funds should meet the project’s purposes.
What are the types of crowdfunding?
Debt crowdfunding. The invested money is used to implement the project. During the project development, investors receive the interest, proportional to the invested amount.
Equity crowdfunding. Investors receive shares of the company. The amount of them is also proportional to the invested money.
Reward-based crowdfunding. Investors receive not a financial, but a material reward, usually products or services.
Donation-based crowdfunding. Project funders do not receive any financial or material reward.
How does it work?
Usually, serious projects need a loan to be implemented. Project’s owners, looking for crowdlending options, address crowdfunding platforms. They choose this option because looking for funding for themselves is quite a demanding task, and crowdfunding platforms have already had a big audience of investors. Crowdfunding companies analyze the request and formulate clear conditions of loan received. Then the project is offered to the investors’ community, the funds start being collected. Investors can choose which project to invest in depending on their return rate, risk group, and other key factors. If the project funding is successful, the project’s owner receives the loan. Unless otherwise indicated in the loan repayment schedule, interests are paid monthly, and the full invested amount is paid back after the end of the project.
Investment in various projects through crowdfunding platforms have several common features:
- The minimum investment amount is € 100
- Investors choose project by their preference, depending on desired return rate, and level of risk
- Investors can manage their investment profile through the platform.
Crowdfunding significantly simplifies the investment process, provides an opportunity to choose an investment project, and receive a higher return on investment.
Who is permitted to invest through crowdfunding platforms?
This type of investment is available for all natural persons, who have reached the age of majority and all legal entities.
Can a beginner investor choose a crowdfunding investment?
Crowdfunding investment is a beginner-friendly investment type since the whole process is easily understandable compared to the stock market.
Quite a few people, who are looking at how to “employ” their money, start from investing via crowdfunding platforms, which, compared to other countries, brings historically huge returns in Lithuania.
What are the risks should investors evaluate?
A crowdfunding platform is an intermediary between the investor and the project owner, offering a range of selected projects of the highest creditworthiness. However, the investor should consider all possible risks: risk of full or partial loss of funds allocated for funding (capital); absence of potential profit, and financial liquidity risks.
Why invest via HeavyFinance?
HeavyFinance is the only platform providing an opportunity to invest in loans backed by heavy machinery. The significant benefit of heavy equipment as collateral is the liquidity of this type of asset. Tractors, combines, and other heavy machines are easier to sell than real estate and don’t lose much value in times of uncertainty.
Investing in this asset class is highly promising since the machinery used in agriculture has a long depreciation period – even 20 years old machinery is functional and can be used in smaller farms.
HeavyFinance business niche is resistant to economic fluctuations since they do not have a direct impact on this asset class. While investing via HeavyFinance platform you can minimize economic fluctuations risk to your investments.
Read more information about HeavyFinance projects here.