Crowdfunding is a way for businesses and individuals to invest. ‘The crowd’, invest small amounts in the business or cause. It started as a way to fund creative projects such as films, theatre projects and music recordings. But now allows almost anyone to raise money from friends, family or complete strangers.
Property crowdfunding involves reaching out to a pool of investors who contribute to the project. This is a viable alternative to traditional bank finance for many developers.
There is great optimism that it will have a “democratising effect” on finance and provide new opportunities for people with even relatively modest amounts of money to invest.
Raising funds in the UK is controlled by the Financial Conduct Authority (FCA) PS14/4 , which was introduced in 2014.
Also known as peer-to-peer or P2P lending, where you lend money to individuals or businesses via a platform in exchange for a set interest rate.
You invest in a company and get a stake in the business, often as shares, and sometimes perks too – freebies or discounts on the company’s products or services.
Any investment comes with risk and crowdfunding is considered a ‘high-risk’ investments. All tour money is at risk and there’s no guarantee you’ll get the return on your money either.
Equity crowdfunding: The biggest risk with is that the business you invest in goes bust and the shares become worthless.
Loan based crowdfunding: The risk here is that borrowers miss their repayments, which could mean you receive less interest than you expected or even lose the money you invested in the first place.
Another possibility is the platform itself failing, which could make it very difficult to access your money or you may lose it altogether.
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