Decline in Access to Bank Loans for SMEs: Crowdfunding Comes to the Rescue

Small and medium businesses (SMEs) are the backbone of many industrial and social sectors but statistical data shows that they are facing significant financial challenges. According to data provided by the Federal Reserve Banks’ Small Business Credit Survey, over 85% of small businesses were experiencing financial difficulties in 2021 alone. Such businesses mostly rely on a bank as their financial provider.

However, while in 2019, over 43% of businesses applied for a loan from a bank, this number dropped to only 37% in 2020. And only 34% of businesses applied for a bank loan in 2021. The application process is also becoming more challenging. While in 2019, 51% of the applicants were given loans, in 2021, only 31% of applicants received the funds they were looking for.

This is why small and medium businesses have to find alternative ways to finance their needs. Crowdlending platforms can help to close this financing gap and offer more comfortable lending conditions for SMEs.

Crowdlending platforms and their role in financing SMEs

Crowdlending is a way for entrepreneurs to raise funds for their businesses through contributions made by third persons. It works similarly to getting a bank loan when an entrepreneur has to pay back any funds borrowed plus interest. All the payments are made within a pre-agreed period of time regardless of the project’s success.

The adoption of crowdlending is growing, with the market size estimated at USD 5.06 bln in 2022, and the expected annual growth rate of over 20% from 2024 to 2030. This adoption rate is driven by the simplicity of crowdlending platforms’ use, as well as their transparency and accessibility.

All crowdlending processes are managed by crowdlending platforms that enable borrowers and lenders to connect directly by eliminating the need for intermediaries. Advanced algorithms and data analytics allow these platforms to perform efficient risk assessment which in turn enhances the lending process efficiency and speed. 

By providing borrowers with an opportunity to compare loan terms, fees, and interest rates across various providers, crowdlending platforms enable borrowers to pick the most suitable offerings. 

All application processes are conducted online, thus eliminating excessive paperwork and reducing the processing time. 

All these factors make many SMEs turn to crowdlending as a source of financing. 

Top crowdlending platforms

Among all the variety of crowdlending platforms, it is important to pick one that matches the business needs most. Here, we have collected a list of top platforms.

Honeycomb Credit

Honeycomb Credit is one of the major players in the US crowdlending market. It enables small and medium businesses to raise money from multiple lenders by utilizing the Regulation Crowdfunding (Reg CF) exemption. While the platform has hosted also Reg D campaigns from time to time, with the majority of offerings not exceeding USD 1m, its main focus is still on the Reg CF investments.

The company is based in Pittsburg, Pennsylvania, but operates all around the country. It works with all individuals interested in investing in promising businesses and earning a return of about 15%.

Mainvest

Mainvest enables investors to invest in small and medium businesses across America. The main difference between this platform and similar solutions is that instead of employing a traditional interest rate, it utilizes an investment multiple (a predetermined amount paid to investors by a maturity date). In this model, returns are tied to the business’ performance thus creating a system where investors and a business work mutually to achieve success.

With quarterly repayments, an average of 10-25 potential returns, and no investor fees, Maunvest looks like a comfortable platform to generate a passive income by investing in promising projects.

Rebuilding Society

Rebuilding Society is a UK-based peer-to-business lending platform that connects individual lenders and borrowers. The platform doesn’t charge any fees for registration, withdrawals, or investments. All the customers pay is a 0.1% monthly fee for ISA accounts and 0.5% for microloan sales.

All loans are rated from A+ to C, with rating C being the riskiest. The interest rates depend on the rating:

• A+ – 11% and lower
• A – 14% and lower
• B – 17% and lower
• C – 2% and lower

Lenders set a rate at which they are willing to lend.

Businesses can get financing from GBP 25,000 to GBP 250,000 within 1 to 3 weeks. The platform doesn’t charge early repayment fees and offers interest rate discounts for secured loans.

ROCKETS Green

ROCKETS Green is a crowdinvesting platform that operates in the Austrian and German markets. Launched in 2013 in Austria, the platform focuses on impactful projects and startups by enabling them to get financing from multiple lenders. Since its launch, ROCKETS Green has helped around 400 businesses with almost EUR 20 mln invested. 

Lenders can benefit from a 10% fixed interest rate, with some loans offering additional benefits. 

The platform allows anybody to invest: individuals and businesses, with the only condition that they have to reside or be registered in Germany, Austria, or Switzerland. 

Registration on the platform is free. However, all income is taxed according to the legislation valid in a specific country. For example, in Austria, investors pay income capital gains tax if their income exceeds EUR 703, and in Germany, the income capital gains tax is paid on income exceeding EUR 1,000.

How to build a crowdinvesting platform with LenderKit

If you are thinking about launching a debt crowdfunding platform to finance startups and SMEs, check out white-label SME lending software offered by Lenderkit. It will allow you to take your services to the next level and service more clients faster and better. The white-label startup investing software comes with an extensive set of features that help you launch a P2P lending platform ASAP.

In addition to using the ready-made stack, you can opt for customizations and have a fully-fledged robust crowdinvesting platform developed for you within the specified timelines and budget.

If you’d like to discuss your crowdlending platform requirements, reach out to us and we’ll see how we can help your business grow.