PERSONAL LOANS

Crowdlending: how loans work without the involvement of banks

In times of low interest rates, bonds bring low long-term losses and savings accounts with low interest. This makes alternative forms of financing such as crowdlending more attractive. An overview of the key points.

25.04.2023

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1.What is "crowdlending"?
2.How does crowdlending work?
3.What are the benefits and risks of crowdlending?
4.Who is crowdlending suitable for?
5.Growth of crowdlending in Switzerland
6.Crowdlending providers in Switzerland

1. What is "crowdlending"?

Crowdlending is also known as peer-to-peer lending (P2P). It refers to the online brokerage of loans, which are usually granted by several private individuals to other private individuals or to companies.

Both sides come together on online loan marketplaces. Loan seekers present the projects they want to finance on these marketplaces, while lenders (investors) have the opportunity to invest in them. Crowdlending is the most common type of crowd financing.

If there are enough lenders for a project, their individual contributions are combined into an interest-bearing loan. Marketplace operators charge borrowers and sometimes investors a fee for intermediary services.

2. How does crowdlending work?

If you need financing, you can apply for a loan on a provider's website. A range of information on your personal and financial situation is required. They serve to assess the creditworthiness of the applicant as part of a credit check. The resulting credit rating reflects the default risk for the investor and is decisive in determining the interest rate.

If the loan application is accepted, the loan project is submitted to potential lenders on the online marketplace. In order to invest in credit projects, a relatively uncomplicated registration on a provider's platform is required. After successful verification of your identity by the platform operator, the first investments can be made.

This chart shows how crowdlending works. Investors invest via an online platform that mediates the investments in the form of loans to borrowers.

3. What are the benefits and risks of crowdlending?

Key benefits for borrowers:

  • your past payment behaviour

  • outstanding liabilities

  • any negative events such as debt enforcement or collection measures

  • As a rule, the process is more transparent, uncomplicated and faster than at the bank

  • Possibility of directly contacting potential customers and receiving immediate feedback

Key benefits for investors:

  • Comparatively attractive return option

  • Easy risk diversification thanks to low minimum investment amounts

  • The credit relationship (credit check, documentation, payment processing and collection) is taken care of by the marketplace operator

Like all forms of investment and financing, crowdlending also carries certain risks. Should the borrower become insolvent, the investor is at risk of losing their entire investment in the worst-case scenario. Furthermore, investors should keep in mind that the borrower may not meet their payment obligations on time or, if possible, they may want to repay their loan early.

On the other hand, those seeking credit should be aware that the rejection rate for loan applications is high and that a poor credit rating can result in a high interest burden. In addition, the loan seeker is also checked by crowdlending providers or lenders. This may extend the processing time.

4. Who is crowdlending suitable for?

Overall, crowdlending offers private individuals, SMEs and the self-employed an interesting alternative to traditional bank loans for obtaining a loan, often in an uncomplicated way and on fair terms.

Investors are particularly interested in loaning to SMEs due to the risk of default from private customers. In addition, borrowers should be aware of the risks and drawbacks of crowdlending, and take these into account accordingly when examining this option. For investors, a new source of returns is opening up, especially in times of low interest rates. Ultimately, however, as always, the higher the interest rate, the greater the risk.

5. Growth of crowdlending in Switzerland

Every year, Lucerne University of Applied Sciences and Arts publishes a Crowdfunding Monitor for Switzerland (only in German). Since the establishment of the first crowdfunding platform in Switzerland in 2008, around 3 billion Swiss francs have been given. 

From 2020 to 2021, the crowdlending division recorded the largest growth (up 35% to 607 million francs). The share of consumer crowdlending (loans to private individuals) has increased by 42% compared to 2020 and now amounts to 78.7 million francs. Real estate crowdlending grew by 40.9% to 418 million francs in 2021. Loans to companies in the real estate sector were a major driver here.

6. Crowdlending providers in Switzerland

Many crowdlending platforms have joined forces and formed an association, the Swiss Marketplace Lending Association. In addition to the various providers, this association also includes the Institute of Financial Services Zug IFZ of the Lucerne University of Applied Sciences and Arts.

The following providers form a selection from the Swiss Crowdlending Market.

Cashare, a provider from the canton of Zug, was founded in 2008 and therefore has to be counted as a pioneer in the Swiss crowdlending market. Consequently, the company describes itself as the first crowdlending company in Switzerland and positions itself on the market with a secure, fast and simple platform.

www.cashare.ch

Learn more: Cashare on comparis.ch

CG24's online crowdlending platform has been around since 2015. Their services include credit financing for private individuals and SMEs. In particular, the company focuses on a more efficient loan process with the help of automation. In addition, CG24 also supports social projects and organizations.

www.cg24.com

Find out more: CG24 on comparis.ch

Creditworld positions itself as a financing service provider for companies – especially small and medium-sized companies. With this exclusive focus, the company wants to promote Switzerland as a business location with its many successful SMEs.

www.creditworld.ch

Crowd4Cash offers not only personal loans, but also SME loans and mortgages. Interest rates for private and SME loans start at 3.9% (for retail customers) and 4.5% (for companies). Financing projects are published on the platform and are thus visible to a wide audience in order to connect borrowers and lenders.

www.crowd4cash.ch

Better interest rates for all – this is the official motto of the crowdlending platform lend.ch. With the "lend.ch Fund", the company is also entering the market for marketplace lenders. Unlike crowdlending, this is not about direct credit intermediation among private individuals. Instead, marketplace lending focuses on professional financial market players.

lend.ch

Find out more: lend.ch on comparis.ch

Lendora is a Swiss P2P credit intermediary based in Zug. Interest rates vary from 3.9% to 9.9%. According to Lendora, a loan is financed by an average of 13 investors. For the mediation, Lendora requires only 0.7 percent of the financing amount per year.

www.lendora.ch

neocredit.ch specialises in crowdfunded SME loans. To assess the conditions, the company is examined by neocredit.ch and is evaluated on a scale between 1 and 7. The interest rate is made up of this valuation and the financing period.

www.neocredit.ch

Students can take out an apprenticeship loan via Splendit's crowdlending platform. Students who are not studying in Switzerland can also have their studies financed. Investors can expect an average of 6% interest minus a fee of 200 francs.

www.splendit.ch

Like Creditworld, Swisspeers positions itself as an online platform for crowdlending for corporate loans, and brings together companies with financing needs and investors with investment needs.

www.swisspeers.ch

This article was first published on 08.08.2019

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