What’s the Difference between Equity & Lend

We’re getting ready to offer two ways for you to invest in Kiwi companies and organisations — PledgeMe.Equity and PledgeMe.Lend.

So how are they different and what can you expect as an investor?

How are they similar?

Whether you’re buying shares or contributing to a loan, the crowdfunding core remains unchanged. The campaign page is still the go-to place holding all info needed to make your call. This includes a to-the-point business plan, past financials, forecasts, and a public forum to ask questions. There might even be some interesting rewards offered if you decide to invest.

You get to hear the story, see the vision and meet the people behind the organisation and can choose whether or not you pledge.

How are they different?

Like a curious Tom Jones, I hear you asking “What’s new pussycat, whoa, whoa, whoa?”. The difference lies in the return, the risk and the relationship.

Unlike holding ordinary shares in a company, lending means that straight from the get-go, there’s an agreed and predetermined return. You’ll be offered a set interest rate on what you lend, and you’ll gradually have the loan paid back to you over time. The benefit is that your financial reward could start flowing sooner whereas the downside (compared to equity) is your return is limited. This means if the company grows incredibly, you’ll receive your initial loan with the agreed amount of interest compared to equity crowdfunding where you own a percentage of that growing company.

Whether you’re considering an equity or lending campaign, we strongly advise you to take a good look at the information provided, ask questions, and get yourself feeling confident before you invest. You want to balance the risk of a company or organisation not fully delivering on the opportunities that they had anticipated against the return you get — be it financial, tangible product, social or emotional.

For lending campaigns, we carry out an initial assessment to see if campaigners are suitable and ready to borrow. We call this our Campaign Readiness Evaluation for Debt (CRED). It’s important to understand that a loan that you contribute to isn’t a sure thing. There is the possibility that you may lose some or all of your investment so think carefully about the cause that you’re supporting and your ability to absorb any loss. If things don’t go to plan, we have a debt collector waiting in the wings to help recover as much of what you are owed as possible.

When you make a loan to a PledgeMe.Lend campaign, you don’t own a piece of the borrowing company or organisation and no guarantees are given. Borrowers will be able to offer secured and unsecured loans. “Securing” a loan means that if things go awry, lenders will have a right to specific assets of the company or organisation (“security”). On the other hand, an unsecured loan has no assets directly connected to it. Security can provide an extra layer of comfort for lenders and as a result of that lower risk, a secured loan will typically offer a lower return on your investment. What being a lender does mean, regardless of the security a borrower provides, is that if a company is sold or is forced to close, you will have priority over the ordinary shareholders of the company when it comes to the distribution of money made from a sale or liquidation. Your repayments come before payouts to ordinary shareholders.

There is a bit more distance in the relationship between a borrower and their lenders than that of a company and their shareholders but PledgeMe sits in the middle and we encourage borrowers to keep you informed as they go out and do good things with the money you invest. As you get repaid, you’ll get periodic updates from the company or organisation to keep you in the loop.

Getting Started

We’ve got a new process for you to Register to Lend which will be live prior to our first campaign. There’s a couple of new bits of info that we need to capture (like your income tax bracket to look after the nitty gritty of Resident Withholding Tax), new terms and a lending disclosure statement to take a read of and agree to.

Our role

We’re still very much the platform in the middle. The big addition to the crowdfunding process with PledgeMe.Lend stems from the ongoing relationship and the steady return that’ll flow your way. We facilitate the flow of money from you to the borrower initially and then back from the borrower to you as repayments are made. We ensure that communication remains open after a successful campaign.

PledgeMe.Lend is a new way for you to support companies and organisations. The instrument is a little different but the essence of it is still the same.