How does crowdlending compare to borrowing from a bank?

When it comes to borrowing money for your business or organisation, you’ve got a good handful of options. There’s a bank loan, there’s other peer-to-peer lending platforms and there’s crowdlending with PledgeMe.Lend. Steer clear of high-interest payday lenders or other disguised loan sharks – their high interest rates and hidden terms can end up putting you under severe pressure. And if you’re raising significant amounts of money, don’t use your overdraft facility or credit cards, because the high interest rates attached to them are meant to only be used to fill short term funding gaps.

One big question we get is: how does crowdlending compare with a bank loan and the other peer-to-peer lenders in New Zealand? How do they measure up when it comes to cost, time and benefits beyond the money. Figuring out what’s most important to your organisation will help you make the right call for you. Here’s our take on four important factors: cost, time, your chances of getting a loan and the benefits beyond money that you might want to see.

Cost

The costs of borrowing money come in a few different shapes. There’s the interest rate that you pay to your lenders. There’s the arrangement fees for putting the loan in place. And for crowdlending and peer-to-peer platforms, there’s campaign success fees and preparation fees to consider.

Let’s take a look at a 5 year unsecured loan of $200,000 (that you’re gradually paying back over time, as well as paying the interest) through PledgeMe.Lend, from a bank and through another peer-to-peer lending platform

PledgeMe.Lend

Total cost of $57,100

  • Interest rate of 8%
  • Interest cost over 5 years: $44,600
  • CrowdfundingU fee: $1,500 (½ of the $3,000 fee if you get it covered by capability vouchers)
  • Success fee (of 5.5%): $11,000

Bank loan

Total cost of $69,400

  • Interest rate of 12%
  • Interest cost over 5 years: $68,900
  • Arrangement fee: $500

Other P2P Lending (LendingCrowd)

Total cost of $76,550

  • Interest rate of 13%
  • Interest cost over 5 years: $75,100
  • Platform fee: $1,450

One other thing to consider is the timing of the different costs. The cost of CrowdfundingU will be upfront, as will the bank arrangement fee. The crowdlending success fee and the platform fee happen once your campaign is successfully funded, and they can be budgeted into the amount that you raise. The interest cost will be spread over the life of the loan.

Time

One other thing to consider is the timing of the different costs. The cost of CrowdfundingU will be upfront, as will the bank arrangement fee. The crowdlending success fee and the platform fee happen once your campaign is successfully funded, and they can be budgeted into the amount that you raise. The interest cost will be spread over the life of the loan.

What’s a reasonable expectation of having the money in your hands to go do the thing you want to do. From application to money in your account (if they give you the thumbs up) a bank will typically take two to six weeks to process your loan – they’ll carry out a business assessment and a household income assessment to help make their decision.

Other peer-to-peer platforms have quick self-assessment applications and (if you get through) you can have you loan campaign up live in a day or so.

For PledgeMe.Lend, our approach is more human-focused and takes longer. You can see if you’re ready to borrow in the space of five minutes by taking our self-assessment CRED. We’ll then chat to hear your story, see what you have planned and give you some hints to get your crowdfunding ball rolling. We’ll work with you one-on-one for six weeks to prepare your offer documents, map out your crowd and draw up your plan of how you are going to get your crowd aware, informed and excited. A typical lending campaign will roll for four weeks and we take up to two weeks to get the money processed and into your account. So all in, to run an effective crowdlending campaign, you’re looking at three months from start to finish.

Your chances of raising the loan

Banks can be quite selective – if you don’t own your own house and are willing to put it up as security, then your chances of getting a loan are pretty slim. Putting up your personal assets to secure your business’ loan is a big obstacle. And realistically, if you really want to borrow from your bank, you’ll have no choice over the matter.

Your chances with crowdlending depend more on the crowd that you’ve cultivated around you, how involved they feel and how well you can communicate with them. We help you to nut all of this out through CrowdfundingU. Showing that you can repay your loan by passing our CRED is the other hurdle for you to fly over.

Benefits beyond money

Ask yourself, what are the things that you want to get out of raising money beyond the money itself? Through PledgeMe.Lend the cost of borrowing may be lower, but the real power of crowdlending through us are the benefits that money can’t measure.

Do you want to have the final say over the terms of your loan? Is that element of control and choice important to you and your crowd? Do you want the return from your loan to line the pockets of an institution or people you don’t really know, or do you want the benefit to go to those you do? Do you feel uneasy using your own home to get the loan you need, closely tying your personal life to the risk of your organisation not being successful?

Does empowering your community to be the key part of your journey appeal to you? Is that sense of togetherness and belonging something that you want to create? Do you want to build your brand awareness and improve your organisation’s public profile? Do you want to show how innovative and inclusive a collective you are? Or do you want to find a sustainable way of raising money that you can come back to, to fund your exciting future plans?

 

Each company and organisation will have different priorities when it comes to these four factors. Take the time to reflect on what’s important for you, and with a clear mind, you’ll make the right choice.

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