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Why investors choose crowdlending to invest in SMEs?

5 Reasons Why Investors Choose Crowdlending To Invest In Businesses

5 reasons

Crowdlending, Marketplace lending, and P2P (Peer-to-peer) lending represent similar appellations of one of the crowdfunding subsegments. It corresponds to a type of alternative financing borrowers use to access alternative funds through a digital platform

There are four distinct types of crowdfunding:

Donation-based crowdfunding, Reward-based crowdfunding, Crowdlending, and Crowdinvesting. Each crowdfunding type has unique characteristics and offers different benefits and risks to investors and borrowers/fundraisers. 

Donation-based crowdfunding involves individuals contributing funds without expecting any returns. Reward-based crowdfunding offers backers a reward in exchange for their contribution. Crowdlending applies to investors lending funds to the borrower, who agrees to repay the amount with interest. Lastly, crowdinvesting allows investors to invest capital in the borrower’s business or real estate in exchange for an ownership share.

The global evolution of this concept attracted many investors to invest in businesses through crowdlending. So, what motivates investors to use these platforms?

There is a distinction between funding and promoting a company’s cause or philosophy

The main drivers behind investing in projects through marketplace lending differ from other crowdfunding models. To comprehend that, we simply ask investors: what’s in it for you?

Understanding investors’ answers to this question is the key to distinguishing two types of motivation: extrinsic and intrinsic. 

Returns and external outcomes drive extrinsic motivation. In contrast, intrinsic motivation is caused by internal factors.

Investing in a business should be done to gain returns and seek an outcome external to the behaviour; in other words, extrinsically motivated. However, funding cultural or social projects to improve society is more related to an individual’s interest or intrinsic incentives. This distinction is essential to understanding different motivations to invest in crowdfunding projects. 

Investors are looking to grow the financial returns from their investments

In crowdlending, the economic outcome of the investment is the primary motive for investors to invest in a project or a business. The extrinsic reasons play a direct role in eliciting an investor to participate in funding a project. When money is used as a form of financial recompensation, “the intrinsic motivation is lost”, according to “Effects of externally mediated rewards on intrinsic motivation” by Edward L. Deci.

Some investors support businesses that want to impact the environment, not just for returns

Implementing Environmental and Social Governance (ESG) standards in companies and startups drives more care from investors. The willingness to solve social and environmental issues and offer ethical and moral principles can interfere with an investor’s extrinsic motivations.

Accordingly, crowdlending platforms provide information about the creditworthiness of a business and the planned economic outcome of investing in a particular project. They also provide information and reports about the company’s ESG approach and how far its projects are involved in social improvement or environmental preservation. This leads to convincing investors to invest in projects that they think are socially and environmentally responsible.

Investors can know a company’s Corporate Social Responsibility options before investing. In some cases, investments can turn into participation in a more significant social impact rather than gaining benefits from it. It eventually results in intrinsically motivated behaviours.

Key factors like time, transparency, and innovation

The total reliance of these platforms on the internet and technologies has created more innovative, faster and transparent investment opportunities for investors. However, investing in crowdlending platforms has developed uncertainty regarding online transactions. The dubiety towards online products and the expectation of loss can result in a perceived risk influencing the investment decision. That is why feeling secure and confident in using a particular platform to invest in crowdlending results from the trust, which most P2P platforms strive to gain from investors and borrowers. For Acredius, handling sensitive customer data always happens with the utmost care. All customer data is saved on secure servers in Switzerland and is only used by Acredius to perform its services.

Investors make their best decisions when they feel safe and secure

A crowdlending platform can influence investors’ decisions to invest their wealth. The perceived ease of use of a platform’s technologies and intuitive features significantly influence the decision to invest in that platform. Since investing in crowdlending platforms requires exchanging funds online, the security of a platform and the safety of investors’ financial and personal information are crucial to deciding whether to invest.

On top of the above reasons, crowdlending is an increasingly popular option for investors seeking to support small businesses while earning a return on investment. With low minimum investment amounts and the ability to choose which projects to support, crowdlending is a flexible and easy investment method.

As the startup landscape evolves, more alternative investment methods like crowdlending emerge. This is an interesting time for investors looking for new and innovative ways to grow their portfolios. Let’s introduce you to our projects.

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