Back to basics: How do you get started with a crowdlending campaign?

Lending can seem pretty scary, so we’ve decided to go back to the basics in this series and explain everything you need to know. We started with a brief history of lending and how lending works. Second up: how do you get started with a campaign?

What do you need to get started?

The first thing you need to check is your structure: are you set up as an organisation? Crowdlending the way we do it is only for those folk that have set up some form of organisation – be it a company, a school, a charitable trust, a co-op, a club.

The second thing you need to check is: will you be able to repay your loan? We’ll ask for some basic financial information in our CRED to check this, but you should be honest with yourself first. If you borrow money, will you be able to repay it? We don’t want to let you get into a situation where you definitely can’t repay your crowd.

Finally, you need to know what the money would be used for? How is it helping your organisation? The pitch to your crowd will need to be clear. Which means you need to be clear with yourself.

 

How does the CRED work?

Your journey begins with our Campaign Readiness Evaluation for Debt (aka the CRED). To get an insight into your organisation and your ability to repay the loan, we’re gonna ask you some questions. If you have your organisation’s financial statements at the ready, it will only take a few moments…five minute long moments to be precise!

The CRED works by pulling out a handful of financial measurements from your statements – the most important ones being how solvent your organisation is (have you funded yourself through equity and profits or through debt?) and the liquidity of the company (how effectively you manage your short-term cash flow). And your combined score from all of the measurements is compared to our ready / not ready threshold.

 

Steps to take

If you can tick the three boxes above, and understand how the CRED works, you should head along to PledgeMe.Lend and create a request. Here’s how you do that:

  1. First up you’ll be asked to complete your CRED as outlined above: https://www.pledgeme.co.nz/loans/cred
  2. Next you’ll be asked to fill out your basic lending request. Don’t worry, none of this information is set in stone!
  3. After that, we’ll be in touch to set up CrowdfundingU. If you’re a smaller campaign (under $100,000) we’ll just run you through a two to three session programme. If you’re looking to raise more, we’ll help you through the complete CrowdfundingU programme to make sure you’re ready to go out to your crowd in a big way.
  4. CrowdfundingU covers everything you need to do from creating your documentation, understanding how not to be false or misleading, learning how to create a comms plan, through to what you should include in your pitch video.
  5. Once all your content is created, we’ll do one final check on your page, your leadership team, and your plans. Then we’ll hit go!
  6. Before your campaign is live, you’ll need to have a plan around communication. Some comms will come naturally out of celebrating milestones, and some will be pre-planned (weekly updates, pitches to media, etc).
  7. Hopefully, you meet your goal by your deadline!
  8. PledgeMe checks all of your lenders (to make sure they are who they say they are) and sets up the loan contract between you and your new lenders.
  9. We’ll be in touch regularly, especially to remind you when your loan repayments are happening, and can help with any questions as you go.

How do you figure out your repayment terms?

Really, this is up to you. You can set the interest rate at something you think (or better yet, know) will be of interest to your crowd and is also affordable for you. We can help you figure out what the right balance for you and your crowd might be.

You can choose to repay your loan over one year, two years…anything up to five years. And you can choose to make repayments every month, four times a year, twice a year or once a year. You can also choose whether or not you want to secure your loan with specific assets that your organisation owns

What does it mean if you can’t run a campaign?

It doesn’t mean you’ll never be able to run a campaign! It just means right now it’s not right for you. You could look at running a project or an equity campaign, or just wait until your revenue and equity has increased (or your costs and liabilities have decreased) to a point where repayment looks possible.

Don’t take it to heart, we still think you’re pretty rad. Promise.

Got questions?

Hit us up in the comments below. We’d love to hear what you like, what confuses you, what else you need in this crowdlending journey. If you’d prefer to chat to one of us direct, send us a line on lend@pledgeme.co.nz

Back to basics: How does lending work?

Lending can seem pretty scary, so we’ve decided to go back to the basics in this series and explain everything you need to know. First up: how does lending work?

A (very) short history of lending

Lending isn’t new by any means.

The first loans were lent in Ancient Greece and Ancient Rome, where pawnbrokers first started offering loans that were secured by animals and tools from the person borrowing. Through the Middle Ages the form of lending changed, including the introduction of indentured loans where the rich lent to the poor, who worked off those loans over time.

In the 18th century, Mayer Amschel Rothschild set up the first international banking system by sending his sons to five European cities to create a network for transferring money. Up until 2004 the Rothschild Bank Offices set the gold price daily.

In the late 18th century building societies started, where membership payments financed the building of member houses. Move forward to the 19th century and The Philadelphia Savings Fund Society was started so that everyday Americans could get loans and save money.

In New Zealand, the first colonial banks were started in the 1840’s. But, lending was not accessible or even seen as a function of the banks. Commercial loan-houses sprung up to fill the void, particularly for farmers who were unable to access funds. “Indeed the common subject of the talk of the settlements was the way in which the banks were retarding development. The matter was made the subject of special consideration by the Wellington Chamber of Commerce in 1858.” (Bedford, 1916). Sound familiar?

It wasn’t until the 1940’s that lending to individuals started in New Zealand, with the Bank of New Zealand (BNZ) opening “New Zealand’s first personal loans department to grant loans to private individuals”.

Modern technology started entering the banking sector in the 1960’s, with the first purchases of computers.  Since then, New Zealand has been at the leading edge of technology in finance.

But, what is a loan?

It’s an exchange of money.

You can think of it as “today-dollars” being exchanged for “tomorrow-dollars”. Someone who has money today but doesn’t need it, connecting with someone who needs money today but doesn’t have it.

The money is typically put towards something productive by the borrower (it could be goods to sell, or machinery to make something of value, or property) that will help to repay the money-giver (known as a lender).

The length of the loan is set so you know when repayments are to made, and the lender is usually rewarded with interest. To give your lenders a bit more comfort you can choose to use stuff to secure the loan – assets like machinery or property. If things don’t work out as planned and you can’t repay your loan, then that stuff gets given to your lenders as compensation.

How does crowdlending work?

Crowdlending rewrites the lending script. The usual single lender is turned into many supportive lenders. So instead of one financial institution lending money to you, your crowd become your  collective lenders. The interest that you choose to pay on your loan will reward your crowd, so that the benefit stays with the people that matter within your community.

Who can borrow money from their crowd?

Companies can borrow from their crowd through PledgeMe.Lend. Organisations (like schools, clubs, not-for-profits, co-ops and community groups) can borrow too.

The things you need to think about

When it comes to your crowdlending campaign the important things to think about are:

  • What will we spend the money on?
  • Can we repay the money borrowed? If that will be hard, it could be too risky to go down this route.
  • Who are our crowd? Are they excited about supporting us?
  • What would motivate our crowd to support? Interest? Extra rewards?
  • Can we dedicate time to create our campaign and tell our crowd what’s happening?
  • What do we want to get out of our campaign beyond money? Strengthening the bonds with our supporters? Publicity & awareness? Finding brand ambassadors who’ll share our story with their worlds? Creating a do-it-ourselves way for us to bring our ideas to life?

To suss out if a loan is right for you, ask yourself

  • Do we do something that generates money (sell stuff, run events, hire out your venue, have paying members), so that we can repay our crowd?
  • How much interest could we pay?

 

If you’re interested in learning more about crowdlending, sign up for our weekly digests on lending during the month of May.

 

References:

http://www.provenir.com/2016/07/history-of-lending/
http://www.teara.govt.nz/en/1966/banking
https://ourarchive.otago.ac.nz/handle/10523/4539?show=full
https://www.bnzheritage.co.nz/archives/historic-timeline/