Investing by Crowdfunding

Investment crowdfunding is a means of gathering money for a company in which you look for a big group of small lenders. Each of the lenders is supposed to invest a small amount of money and receive equity shares in return. This investments option used to be available to accredited investors only, yet now the door has been opened to the wider circle of investors.

Apart from equity shares, investors can also receive debt – here a group of individual investors invest in a small part of a big loan. This kind of debt investment includes a higher risk level, hence, the interest rates are also higher than it is in the other options. Nevertheless, the risk can be diversified by sharing the whole amount of investment money between a numerous loans rather than investing in only one. Lenders have the knowledge of the intended use for the loan and its terms such as interests rate, loan’s length and probable credit rating. Generally, borrowers choose this option when the traditional ways of financing are too expensive or unavailable for them.

Crowdfunding vs. traditional sources

Crowdfunding has become an alternative for traditional ways of start-up financing. Bank loans, borrowing money from family or friends, angel investors etc. are the options which are not always available and profitable. In the case of investment crowdfunding, start-up entrepreneurs can find a good source of financing for the price of their shares adequate to the amount of money invested. By the means of crowdfunding, beginning entrepreneurs have the chance to find financing comprised of small investments made by a large group of backers.

LendingClub and Prosper are micro-lending platforms which enable lenders to become backers not part-owners of the company. Such backers profit from a loan by receiving interest payments throughout the whole life of the loan.

Can we avoid failures and losses?

Obviously, which is typical of investing process, the risk is present in both equity and debt investment options of crowdfunding. On the other hand, the risk can be lowered by cutting the capital into small pieces and investing in a large amount of options. The perfect way to decrease the risk would be an insurance, yet for now, this issue has been only discussed as the option available for a premium payment.

Any trouble with investing?

If you feel that you lose all the lucrative chances, take care of being well-informed. Look through the Internet for more information and observe the market so as to stay always up to date. Receiving significant news and current market analysis on your e-mail should also help you gain a good insight into the topic. And what if your motivation is continuously wearing out because of losing trades you keep making? Consider signing up for free stock simulator which will help you practice investing with virtual cash before risking your own money in real life.

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Are You an Income Investor? Consider Peer-To-Peer Lending

The idea of peer-to-peer lending has brought many new opportunities for investors who seek something different from bonds and stocks. In short, as a user of a peer-to-peer lending platform you can become a lender who lends money to individual borrowers or you are a member of “a loan pool” if you want to decrease risk and possible loss. Checking your potential borrower’s three bureau credit scores  gives you a complete look of their credit and helps you make the best decision.

The best quarterback

Lending Club is the biggest player in this market. Here $35,000 is a maximum amount of a loan for a person – with fixed interest rate and for a wide variety of purposes – and $300,000 can go for a business. Lending Club point out that they have strict approval conditions so as to gather the most credible borrowers. According to them, 699 FICO score is the average among their borrowers. Those who apply for a loan receive grades (A-G) which decide on their interest rates that start at 7,34% and end at 25,54% (these are more inviting compared with the average national rate).

Instead of lending all money to one borrower you can diversify the risk of a total loss. In Lending Club you have the option of investing in “notes” – pieces of loans. When you invest $2.500 buying 100 notes costing $25 you lend money to 100 borrowers, and at the same time, you limit your individual loss risk to $25. In case you suddenly need to get out of your investment, you can try to find a buyer for your notes. The problem is that Lending Club cannot guarantee finding a buyer for you, unfortunately. The maximum length of consumer loans is five years and you should be prepared for a commitment for this period of time.

How much do I pay?

When it comes to fees, investors must pay for principal and interest payments they collect. This servicing fee is 1%. The collection fee is 35% of the total collection. In case of necessary litigation, its costs and 30% of fees covering attorney remain on the investor’s side. Investors are not charged with any collection fees if they do not collect any payments. Also the collection fees cannot exceed the amount of money recovered.

More than just one option

Peer-to-peer lending has also other forms, such as professional money managers (banks, insurance companies or private pension funds). They offer partnership in Lending Club investments. Visit Lending Club’s website or contact an investment adviser if you look for some alternatives of peer-to-peer investments in Lending Club.

It is believed that the traditional lending market may be outrun by the peer-to-peer lending or its alternatives. It surely is worth considering, yet still it is not a perfect way of investing for everyone. It involves both high chances for good income and a high level of risk at the same time. It would be advisable to start with a small amount of money, just in case it turns out to be not for you. Still, the prospect of good profit can be really convincing and worth devoting time to learn more about this kind of investments.

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The 7 Peer-To-Peer Lending Websites you must know

Many people can admit that they have rather negative connotations with regard to traditional banks. Inflexibility and strictness make banks rather an archaic institution which loses to the innovative peer-to-peer (P2P) lending system.

To put it briefly, P2P lending uses online platforms to provide a tool which connects potential borrowers with lenders. Eventually, it costs much less time, fuss and red tape than in the case of the traditional banks.

P2P lending has become a great success. The Internet-centered world must have affiliated such a solution to the traditional system’s imperfections. It is an easier, cheaper and faster way of borrowing and lending money.

The wide variety

Along with the growing popularity of this system also the competition between platforms is increasing. The general rules are the same, but the platforms offer differently targeted products. Also interest rates, conditions of eligibility or tenures can vary. We list some of the best known websites which you should visit if you seek a reliable P2P platform.

Lending Club

The father and the biggest player of peer-to-peer lending market. The loans offered by them start at $1,000, and $15,000 when it comes to businesses. The maximum is $35,000 and for business $300,000.

Prosper Marketplace

It is the U.S. prototype of P2P lending platforms which noted a huge growth since its very beginnings. The number of its members reaches 250,000 people. The purposes of loans offered by Prosper are richly varied. You can loan from $2,000 to $35,000 for 3 or 5 years. The annual rates start at 5.99% and end at 36% for the new borrowers.

Upstart

This platform is good for the younger clients with short credit history and low FICO score which precludes receiving a loan in a traditional way. Actually, for Upstart the score is a minor factor and these are your education and work performance which count most. Here you can obtain from $3,000 to $35,000 at an annual rate of minimum 4,7%. They offer loans for a very wide range of purposes.

SoFi

SoFi is a place for the beginning professionals who need help in paying their debts. SoFi’s loans are rather big ($5,000 to $100,000). Unfortunately, to become eligible for their loan you must fulfil certain conditions.

CircleBack Lending

If you have a good credit history and need a lot of money visit this platform. Also here the variety of your loan’s purposes is wide. The interest rate is set between 6.63% and 36% and is dependent on the amount of money loaned and the loan’s durance. Apart from that, your credit score, credit usage or history also influence the interest rate.

Peerform

A platform which offers the annual interest rates between 7,12% to 29,99%. The minimum amount of their loans is $1,000 and the maximum $25,000. Peerform gives a chance for people with low credit scores. They utilize their own Peerform Loan Analyzer which is a substitutive tool for FICO scores. With their loan you can finance many different things like your new car, wedding, house redecorations or debt consolidation.

Funding Circle

This platform is centered on financing small firms. Its creators believe that the banking system does not support small businesses enough and they decided to look for a solution to this problem. What is interesting, the whole thing started with their own experience of trying to receive a loan for 96 times, but to no avail. For now, their result is $1 billion loaned to about 8,000 businesses. Currently, their platform has 40,000 of investors, including the British government. If you need money for your business consider Funding Circle. Their offers start at $25,000 and the maximum reaches $500,000.

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