20.März | Finanzierung
Why crowd investing is becoming increasingly interesting for medium-sized companies
Growth and expansion are among the fundamental goals of many successful entrepreneurs. However, most projects already fail due to the necessary financing, as banks usually require a fixed equity share.
Aspects such as the provision of collateral, a sufficiently assessable company history and also possible negative events from the ongoing cooperation are often sufficient to partially or completely refuse to grant a loan. In addition, the growth project in which the investment is to be made hardly plays any role in scoring, at least not for the underlying credit decision. This is where a crowd investing platform can make the difference. Crowd investing is the joint investment of a crowd in a specific project. This can be either a company or a specific project. All of them have one common component in common, namely the raising of capital for a specific purpose via the crowd. A distinction is made between donation-based crowdfunding, which is often found in the social, arts and cultural sectors, and reward-based crowdfunding. In addition to crowdfunding, there is also crowdlending (which will not be discussed in detail here) and crowd investing.
In crowd investing, the loan requested by the company (funding amount) is designed as an investment and offered to a large number of investors via a platform. The investment is usually linked to a fixed interest rate and/or a profit-sharing on the invested capital.
Easier access to loans compared to bank loans
Of course, such a platform also has strict test criteria, but they only partly correspond to those of the bank and partly go beyond them. For example, the crowd investing platform is obliged to comply with the provisions of the Small Investors Protection Act and to have projects approved by BaFin (German Federal Financial Supervisory Authority) by means of an asset investment information sheet (VIB) - which contains all project-relevant information such as issuer, term, interest rate etc. Here, the company can possibly score points with other arguments that speak for the success of the project in order to procure the additional capital that would be necessary for the bank to grant a loan.
Optimize balance sheet and free use of funds
In addition to the realisation of the project, crowd financing offers further advantages for companies. First of all, they can optimise their balance sheet by raising capital, as the capital raised is treated as economic equity if it is subordinated and thus has a positive effect on the creditworthiness of lenders. The capital raised by the crowd can thus serve as an equity surrogate.
In addition, the company has the freedom to control the use of funds independently, as crowd investors have no say in the use of funds despite the economic equity character. They remain merely borrowers and cannot intervene under company law. Due to the subordinated status of the loan, the investor takes a higher risk and is rewarded with higher interest rates. A further major advantage of crowd financing compared with traditional financing methods is that, as a rule, no collateral has to be provided.
Target group-oriented marketing
The funding campaign should also not be neglected. By marketing the project in a target-group-oriented manner (also called crowd marketing), the company gains access to all channels of the crowd investing platform and its partners. This means that the public funding campaign can provide the company with greater reach and raise its profile. The marketing measures can ideally help the company to reach new target groups and consequently lead to a significant increase in sales.
Last but not least, crowdfunding can also be the only way for the company to implement its growth plans in a holistic way. Be it through mixed financing or through a pure subordinated loan.