Why Crowdfunding Must Change to Fill the Bank-Shaped Hole
The amount of credit lent by banks to small businesses is declining by 7% year-on-year. This has created a huge funding gap which various kinds of online platforms are hoping to fill.
The growth of online funding platforms shows this market opportunity. In December 2014 there were 24 online lending platforms in the Netherlands. Today there are 36, and 27 are unregulated. The same is happening all over the world. Among these loan marketplaces are credit unions, online lenders, so-called "shadow banks" and crowdfunding platforms.
Crowdfunding has an opportunity to offer a sustainable alternative in this expanded small business loan market - and leave the 14% interest rates to the loan sharks.
Yesterday, in this context, my team at Symbid launched a campaign titled 'Higher Rates, Higher Risks' with the help of finance executives & academics. We did this after seeing 3 unsustainable trends over the last 12 months. The objective was to spark discussion among the investors, entrepreneurs & platforms that make up our industry. I believe that a lack of regulation means we can reshape the future of crowdfunding ourselves.
It was a bold statement to the market & applies to us at Symbid all the same.
Here are those 3 key challenges:
- Rising interest rates caused by a market imbalance;
- Lack of transparency in how platforms work;
- Limited understanding of risk among crowdfunding investors.
Small businesses account for 99 out of every 100 businesses in Europe. Their financial dependence on the banks has made them vulnerable now. In the Netherlands, for example, banks rejected 39% of small businesses in 2014.
I hope that this campaign - which includes an independent white-paper - highlights 3 key ways for our industry to be part of the long-term solution, rather than the problem.
I'm looking forward to seeing if others share our vision.