The rise of crowdlending as an alternative finance model

A few weeks ago we posted a blog article about Angel investing in Spain. When looking into the advances of the angel investment sector in the country crowdlending is worth taking notice of.

Crowdlending, also called peer-to-peer business lending, entails financing companies through loans offered by multiple investors. It’s an innovative model that allows financing by the financial community via intermediary platforms without having to solicit the services of a bank or other traditional financial institutions.

In recent years the model has grown rapidly internationally. According to The 2nd European Alternative Finance Industry Report by the University of Cambridge, crowdlending is currently growing at a rate of more than 300% a year, with €212m recorded for 2015 in Europe. In Spain the growth is less striking although still significant, accounting for €38m in total volume between 2013-15, and growing at an average of 222% per year between 2013-15. Starting from a relatively low base in 2013 (3m) the numbers grew by 384% between 2013-14, to €14m in 2014,increasing by an additional 59% between 2014-15, to €22m.

According to José Gandía of Bodegas Gandía this system of micro investment of startups and Small and Medium Enterprises (SMEs) is an attractive option: “after 3 consecutive years lacking in profitability in other financial assets (bonds, stocks or funds), crowdlending was at the end of 2015 the most profitable financial asset, with a global average return above 6 %.” In addition, says Gandía, “the correlation between crowdlending and the rest of financial products is given by its value generation when investing in SMEs mainly, that is, in the real economy. This coupled with the transparency of crowdlending (where everything is visible online and in real time) and the immediacy of operations is revolutionizing and at the same time democratizing finance.”

 

How to invest in crowdlending?

Crowdlending investment is done through online platforms. The investment process is quite simple. These platforms ask you to register, they validate your data and load your account with the balance of your choosing. Once the money is available you simply pick the project of your interest and invest the amount you want.

Three considerations to keep in mind:

  • Crowdlending is regulated by law, which means that platforms cannot act on their own free will, but must meet certain requirements to operate.
  • In case of a borrower not paying, the platform initiates the recovery process in the same way as a bank would do, and the borrower faces exactly the same consequences as if he stopped paying the bank.
  • The law prohibits platforms from saving investor money. This has to be guarded by an independent financial institution, which means that if the platform closes, the investor still has access to his money.

Below is a list of crowdlending platforms that operate in Spain:

If you are considering to crowdlend and want legal advice don’t hesitate to contact us.