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Comparing crowdfunding to peer-to-peer lending?

"Lenders have different expectations when they lend as opposed to when investors invest"
  • Written By: Maria
  • Role: Marketing
  • Date: 22nd November 2013
  • Time: 11:35 am

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Comparing crowdfunding to peer-to-peer lending?

What is peer-to-peer lending?

Wikipedia says” Peer-to-peer lending is the practice of lending money to unrelated individuals, or "peers", without going through a traditional financial intermediary such as a bank or other traditional financial institution”

Peer-to-peer lending came along long before crowdfunding and has become mainstream, Money Saving Expert featuring it this year.
With peer-to-peer you are lending money and promising interest.  With Crowdfunding there are two scenarios.  In equity crowdfunding you invest in return for shares (and the potential promise of a dividend), in rewards you contribute with a view to obtaining an exclusive non-financial product or service.

The motivations behind each of these actions are quite specific and each has its own place in the funding ecosystem.  Lenders have different expectations when they lend as opposed to when investors invest. The same individual may even be playing all three roles with different businesses, but they have specific risk-reward-expectation criteria in each case that drives their contribution.