Crowdlending and peer-to-peer lending

Crowdfunding and peer-to-peer lending are two forms of financing that are gaining ground among Danish companies

Crowdlending and peer-to-peer lending

The financial crisis has made it more difficult for Danish companies to obtain financing from traditional banks. As a result, more Danish companies are now finding alternative financing options outside the bank. In particular, two new forms of financing, peer-to-peer lending and crowdfunding, have gained ground in the Danish business community.

What is peer-to-peer lending?

Peer-to-peer (or P2P) is a relatively new phenomenon in the commercial lending market, and refers to a form of lending where individuals or businesses lend money to individuals and businesses via an online platform that matches the borrower with the lender.

Lendino is an example of a so-called marketplace for loans, where both private and professional investors can lend money directly to businesses.

How does peer-to-peer lending work?

Both lenders and borrowers register on an online platform, i.e. the peer-to-peer company website. Borrowers present their "project" or business and describe why the business has a financing need. The private investors study the company and assess whether they want to lend money to the company. In many cases, the amounts involved will be small and spread across several different investors, which explains why this form of lending is also known as crowdlending.

What are the advantages and disadvantages of peer-to-peer?

Crowdlending and peer-to-peer lending offer businesses the opportunity to seek and obtain finance outside the bank. In some cases at a more advantageous price. At the same time, it allows lenders to get a higher return on their savings, for example, than if they were simply sitting in a savings account. On the other hand, a sufficient number of individuals need to be convinced, and although the process is simple compared to the bank, it can take up to several weeks before the money goes into the account. As the company borrows from many individuals, problems with repayment risk directly affecting the people who have lent the money.

Crowdlending and peer-to-peer lending