Launch of a crowdlending platform

In recent years, crowdlending has become an innovative method of financing new projects and small companies. Crowdlending, known as P2P lending, offers additional money attracting possibilities to enterprises, bypassing classical banking institutions. Listing a project on crowdlending portals enables the raising of funds from individual or corporate investors by establishing a direct relationship between borrowers and investors.

Crowdlending platforms

These are online services that facilitate project funding from a broad audience. They give the possibility to attract small amounts of finances from a number of investors, as opposed to seeking large investments from individual investors or money establishments. This article will discuss the features and types of crowdlending, its upsides, and disadvantages. The article may be relevant to those interested in registering a crowdlending platform.

What is crowdlending: definition and main features

Crowdlending

This is a procedure of project funding where funds are accumulated from a number of investors over the Internet. Instead of turning to banks and other traditional sources of funding, enterprise creators (or entrepreneurs) approach the general public to obtain small amounts of money from numerous participants, known as "sponsors" or "investors."

In recent years, there has been an increase in the number of individuals wanting to establish crowdlending platforms or use the services of such platforms to finance their innovative ideas. Crowdfunding has a significant influence on various aspects of business, technologies, and finance.

Several main aspects characterizing the role of crowdlending in the economy:

• Funding startups and innovations. Crowdlending opens up possibilities for aspiring entrepreneurs and companies to acquire capital without counting on classical sources of funding, such as banks. This facilitates the development of innovations and new commercial ideas.
• Cultural development. Crowdlending is actively applied in the cultural and artistic sphere to finance projects connected to art, music, literature, cinematography, and other creative fields. This enables artists and creators to find support from their audience.
• Social and charitable projects. Crowdlending is used to raise money for socially-oriented projects, assisting address various societal issues, from combating poverty to environmental conservation.
• Access to capital for minor enterprises. Since traditional banks often deny young companies or small businesses access to credit, startup companies can use crowdlending to attract capital for development and expansion.
• Expanding access to financing. Crowdlending services provide a possibility for anyone interested to take part in financing projects, whether it's funding a startup, supporting research, or other goals.
• Globalization. Crowdlending allows projects to attract funds from participants worldwide through online platforms, contributing to the globalized nature of financing and collaboration.

In general, gathering funds through crowdlending platforms opens up new financing and support opportunities for various types of projects. This instrument has a considerable impact on innovation, promoting diversity and competitiveness in the economy.

Main differences between crowdfunding and crowdlending

In everyday usage, the terminology "crowdfunding" and "crowdlending" may be used interchangeably as synonyms. However, in the business environment, these terms are used to denote various financing models.

Crowdfunding is a funding model where participants provide funds without expecting financial returns and may receive small rewards from project creators. On the other hand, crowdlending is a financing model where participants provide finances with the expectation of financial returns in the format of a share of profits or equity in the company. It is a more investment-oriented method and is often used for startups, new businesses, and innovative projects.

Crowdlending is frequently backed by collateral assets, shares, and/or personal guarantees. Investors generally maintain the right to recover their investments with interest. Returns can be withdrawn or reinvested in alternative ventures on the crowdlending platform.

Launching a crowdlending platform: advantages

Crowdlending offers a range of benefits for both borrowers (those in need of financing) and investors (those providing funds).

Benefits for borrowers:

• Easy access to financing. Crowdlending gives an opportunity to obtain funding for those who might face difficulties approaching classical banks or investors. This is specifically profitable for startups, small enterprises, and projects with limited resources.
• Diversity of models. Borrowers can choose from various crowdlending models to find the best conditions for their needs.
• Speed and efficiency. The process of receiving financing through crowdlending can be quick and efficient, especially when compared to more classical methods of lending.
• Community engagement. Crowdlending fosters the involvement and support of great online community, allowing borrowers to establish close relationships with their contributors.

Benefits for investors:

• Diversity of investments. Investors can widen their investments by placing funds to various projects and companies through crowdlending.
• Access to new opportunities. Crowdlending provides access to investment opportunities that may be innovative or groundbreaking and could be unavailable through traditional investment channels.
• Support and participation. Investors can actively engage in the development of projects/ideas that interest them.
• Opportunity for income. Depending on the crowdlending model, investors may receive interest or rewards for their investments.

How to launch a crowdlending platform: types of crowdlending

Crowdlending platforms act as intermediaries between businesses, startups in search of financing, and sponsors willing to provide funds. These platforms provide online infrastructure for launching and managing crowdlending campaigns.

Important features of crowdlending platforms include:

• Posting project information. Project creators can present their ideas, goals, details about how much funding they need (through project descriptions, video presentations, images, and other informational materials).
• Attracting participants. Crowdlending platforms offer tools to attract potential investors and sponsors. Project creators can use social media, email, and other methods to spread information about their campaigns.
• Transaction processing. Crowdlending platforms ensure safe and convenient execution of financial transactions. Investors can make contributions through the platform, and project creators can receive funds after the successful completion of the campaign.
• Campaign management. Crowdlending platforms provide tools for monitoring campaign progress, interacting with participants, exchanging information, and receiving feedback.
• Dispute resolution. Crowdlending platforms may provide mechanisms for resolving disputes between project creators and investors. This is an important aspect that contributes to building trust in the platform among participants.

In crowdlending, there are numerous kinds of financing, including debt-based, equity-based, and hybrid. In the table, we will delve more into each of these types.

Debt Crowdlending

In the debt-based crowdlending model, investors provide funds in the form of loans to projects or companies. Projects commit to repaying the invested funds along with interest in the future, typically over a specified period.

This model is often used for financing business projects, supporting startup development, and other ventures where offering shares or ownership stakes is not the optimal choice.

Equity Crowdlending

In this model, investors acquire a stake in the startup/project in exchange for their financial contributions. They become stakeholders and have the entitlement to a portion of the profits and management control of the company (in accordance with their share).

This type of crowdlending is often utilized by startups and entrepreneurs to attract investments in the early stages of their development.

Mixed Crowdlending

This type combines both debt and equity models, giving investors the option to choose between investing with an expectation of debt repayment or acquiring a stake in the project.

This model provides a broader range of opportunities for sponsors and project creators.

Each of these types of crowdlending has its own advantages and disadvantages. The choice depends on the needs of project founders and the goals of investors. It is also crucial to consider regulatory aspects, which may vary across countries and locations. Crowdlending is a powerful tool for project financing, and the selection of a specific model should be carefully justified and well-thought-out.

In this regard, it is advisable to seek the expertise of a qualified professional who is knowledgeable about all the legal nuances of operating crowdlending platforms in a particular jurisdiction and can provide sound legal support for entering crowdlending platforms.

Regulation of crowdlending platforms

Regulation of crowdlending platforms may vary depending on the country and typically includes the following aspects:

• Licensing and registration. In many countries, crowdlending platforms are required to obtain specific licenses or register with competent authorities.
• Financial regulation. crowdlending platforms fall under financial regulation. This may include restrictions on loan amounts, requirements for fund reservation, as well as obligations related to customer identification.
• Investor and borrower protection. Regulatory bodies establish rules aimed at protecting the interests of sponsors and borrowers. This involves disclosure requirements, creditworthiness monitoring of borrowers, and similar measures.
• Risk management. Regulatory bodies may require crowdlending portals to establish risk management systems and strict internal control procedures.
• Privacy legislation. Crowdlending platforms, like any other entities, must adhere to privacy and data security laws for client information.
• Monitoring and reporting. Portals are obliged to present regulators reports on their activities and financial status, as well as interact with auditors and supervisory bodies.
• Anti-money laundering. Crowdlending platforms must adhere to laws combating money laundering and the financing of illegal operations, submitting information about clients and their payments in accordance with legislatively established standards.

Registration of a transcontinental crowdlending platform: key parties

On crowdlending portals, there is a complex network of interactions among various parties contributing to the successful execution of crowdfunding campaigns. Crowdlending platforms provide participants with the opportunity to showcase innovative ideas, raise funds, and engage with the community. The key participants on the platforms are:

1. Investors (Sponsors):
   • Investors are individuals or investment companies that provide financial support to projects featured on the platform.
2. Borrowers (Project Creators):
   • Borrowers are individuals or organizations that post their own startup/ideas on the crowdlending platform. They seek financial support from sponsors. Borrowers typically provide detailed descriptions of their projects, specify fundraising timelines and goals, and may offer rewards or shares in the project in exchange for funding.
3. Platform Operators:
   • Platform operators are companies managing and operating the crowdlending platform. They provide technical infrastructure, ensure data and payment security, conduct marketing, and attract users. Operators may establish rules and policies, monitor compliance with regulations, and facilitate refund processes or the distribution of project earnings.

These three groups of participants play a crucial role in the successful functioning of a crowdlending platform. They interact with each other, providing financial support to projects, fostering innovation, and contributing to the growth of the crowdfunding sector.

Legal aspects of launching a crowdlending platform

Registering a crowdlending platform is a complex task that involves various aspects, ranging from technical development to legal and financial regulation. The key steps and aspects when creating a crowdlending platform are:

1. Prepare a Business Plan:
   • Define the goals and concept of the crowdfunding platform.
   • Develop a monetization strategy.
2. Legal Support for the Project:
   • Choose the legal structure of the crowdlending platform (e.g., limited liability company).
   • Ensure compliance with regulatory acts in the crowdfunding field in the chosen jurisdiction, including financial and tax obligations.
3. Technical Development:
   • Develop a web platform or application for crowdlending, including frontend (user interface) and backend (server-side).
   • Ensure data protection for platform users.
4. Financial Management:
   • Implement payment processing systems to allow users to contribute to the platform.
   • Develop a system for tracking funds, fees, and payouts to projects.
5. Marketing and User Acquisition:
   • Devise a marketing strategy to attract sponsors to the platform (utilize social media, content marketing, and other methods for promotion).
6. Support and Maintenance:
   • Build customer support to address user inquiries.
   • Maintain the relevance and security of the platform through regular updates.

Creating a crowdlending platform needs effort and resources, including financial and time investments. It's also crucial to prepare for market competition and create unique features that attract users. Engaging legal professionals can be highly beneficial for the successful implementation of the project.

Choosing a legal structure for a crowdlending platform

Launching a crowdlending platform is a labor-intensive and often long-term process. Success depends on your readiness to work in a complex environment and adapt to changes. One of the primary decisions in this process is determining the optimal legal structure. Depending on the country where you plan to register the crowdlending platform and your specific goals, various options may be available:

• Limited Liability Company (LLC): LLC is one of the most common forms that provides limited liability to owners and is characterized by management flexibility.
• Joint Stock Corporation: This type of enterprise can be useful if you plan to attract investments through the sale of shares (equity crowdlending). Corporations have a more complex management structure but, like LLCs, offer limited liability for shareholders.
• Nonprofit Organization: If the crowdfunding platform has charitable goals or a social focus, creating a nonprofit organization may be considered.

The selection of form is based on multiple factors, comprising the strategy for attracting investments, tax considerations, and management structure. Consulting with a lawyer specializing in overseas company registration is a wise decision to make an informed choice.

How to create a crowdlending platform: developing contracts

Compiling documents for the operation of a crowdlending platform is a crucial step in ensuring legal transparency and the safety of all participants. Below is a general list of documents and explanations of what they include.

1. Terms of Use for the Platform:
   • These documents establish the rules for using the platform for all users, including investors and borrowers. They should include information on registration, data collection and storage, security rules, dispute resolution procedures, and other important aspects.
2. Privacy Policy:
   • This document regulates the collection, storage, and use of users' personal data. It serves to inform clients of how their personal data will be used and protected.
3. Internal Rules of Operation of the Crowdlending Platform:
   • These documents define the internal procedures and rules of operation of the platform itself. They may include risk management rules, project coordination and moderation processes, and financial monitoring procedures.

When preparing the above-mentioned documents, it is important to consult with lawyers specializing in the relevant field to ensure that they comply with the legislation of the country chosen for the platform launch. Additionally, the platform must adhere to all necessary licensing requirements in the specific country.

Legal services for startups: assistance in registering on a crowdlending platform

Registering a startup on a crowdlending platform involves various legitimate aspects, including contract negotiations, compliance with regulatory standards, protection of intellectual property, and many other issues. Legal services for startups in this context may include the following steps:

• Compliance with legislation: lawyers can help the startup understand and comply with all legislative protocols, which may vary depending on the jurisdiction and type of crowdlending platform.
• Protection of intellectual property: if the startup has unique technologies, brands, or other intellectual assets, lawyers can assist in registering patents, trademarks, and copyrights to protect them.
• Dispute resolution: in case of disputes with the crowdlending platform or other participants, lawyers can provide legal support in dispute resolution according to applicable laws.

It is essential to choose experienced lawyers or a legal firm with a track record of working with startups and knowledge of the specifics of crowdlending. They can help the startup avoid legal issues and provide legal support at all phases of registration and operation on the crowdlending platform.

Creation of an international crowdlending platform

Registering a platform for international crowdlending is a multi-stage and labor-intensive process that requires attention to several aspects. Some key considerations when developing such a platform include:

• Compliance with global standards:the first crucial step is to study and comply with international financial services regulations. This involves awareness of applicable standards set by international financial regulators, such as the International Association of Insurance Supervisors (IAIS), and understanding global data security norms.
• Adaptation to jurisdictional requirements: as laws can significantly differ between countries, it's important to create a platform capable of adapting to various jurisdictions. This may require developing different versions of documents to comply with the laws of each country.
• Currency conversion and multicurrency support: international platforms often deal with clients from different countries, necessitating support for various currencies. It's important to have mechanisms for currency conversion and processing multicurrency transactions.
• Integration with international payment systems: the platform should integrate with international payment systems such as PayPal, Stripe, and others to provide convenient payment methods for clients worldwide.
• Adherence to international data security standards: data protection is a priority when creating an international platform. International data security standards, such as GDPR (General Data Protection Regulation) in Europe or HIPAA (Health Insurance Portability and Accountability Act) in the United States, should be considered.
• Multilingual support: ensuring support for different languages on your platform is important, including interface localization and documentation.
• Risk management: international platforms need effective and robust risk management programs.
• International marketing and customer acquisition: taking into account cultural nuances and preferences of different markets is crucial when developing marketing strategies and attracting customers.

Creating and operating an international crowdlending platform requires attention to numerous aspects, and working with experts specializing in supporting international investment activities can significantly streamline this process.

Where to create a crowdlending platform: what is important to consider when choosing a country?

Crowdlending is a relatively young phenomenon in the financial world, but it has gained immense popularity and trust among numerous investors. The choice of jurisdiction for launching a crowdlending platform determines the regulatory framework within which your business will operate. This can affect the ability to attract investors and entrepreneurs, as well as the level of protection for all parties involved. Several important aspects to consider when choosing a jurisdiction include:

• Regulatory aspects: regulation of crowdlending can significantly differ across countries. Some jurisdictions have strict rules and licensing requirements for crowdlending platforms, while others may be more flexible and innovation-friendly.
• Tax regime: analyzing tax rates and rules in the chosen jurisdiction is crucial. The tax burden can significantly impact the platform's income and competitiveness.
• Investor protection: it's important to consider the level of protection provided to investors in the chosen jurisdiction. Effective legal mechanisms for dispute resolution and investor rights protection contribute to building trust in your platform.
• Market and investor access: some countries may have more active and diverse crowdfunding markets, enhancing the chances of successfully attracting investments.
• Competitive environment: researching the competitive landscape in the chosen jurisdiction is vital. A high number of other crowdlending platforms may influence your ability to attract investors and projects.
• Operating costs: considering the overall cost of doing business in a particular jurisdiction, including taxes, licensing fees, and other administrative expenses, is essential.
• Political and economic stability: evaluating the stability of the political and economic situation in the chosen jurisdiction is beneficial. Instability may pose risks to your business.
• Global ambitions: if you plan to scale your business globally, it's necessary to analyze how the choice of jurisdiction may impact your ability to operate abroad and comply with international standards.

When selecting a country to establish a crowdlending platform, it's advisable to consult with lawyers who stay informed about regulatory innovations in financial markets across countries. They can provide detailed information on current changes and assist in choosing the jurisdiction for registering a crowdlending platform.

Popular jurisdictions for launching a crowdlending platform

As we've mentioned, launching a crowdlending platform is a serious process, and the choice of jurisdiction plays a significant role in the successful development of the business. Below are some popular jurisdictions for launching crowdlending platforms.

United States (US):

The US has one of the biggest crowdfunding markets globally. It boasts numerous potential investors, and there is a well-developed financial instrument system that can be used for crowdlending activities.

Various kinds of crowdlending are available in the US, including crowdlending for startups, crowdlending with guarantees, and crowdsourcing. Regulation of crowdlending in the US varies depending on the type, but overall, the states have a carefully crafted system of legal norms for crowdlending companies, providing clearer rules and protection for both entrepreneurs and investors.

In addition to the above, the US is a source of innovations in the field of financial technologies (FinTech), which is attractive for companies wishing to use advanced approaches in their crowdlending business. The US has access to experts who can assist in launching a crowdlending platform.

However, like in any other country, launching a crowdlending platform in the US is associated with specific legal requirements, so it is advisable to consult with legal advisors to comply with all necessary conditions.

United Kingdom (UK):

The United Kingdom has transparent and stringent rules regulating financial services. Crowdlending is supervised by the Financial Conduct Authority (FCA), ensuring a high level of trust from investors and protecting their interests. The country provides access to global markets, which is crucial for crowdlending services targeting at global audience.

London, in particular, has an active community of startups and entrepreneurs. Overall, this jurisdiction has a reputation as a developed and progressive center for financial services and innovations. This positive image contributes to attracting investors and gaining trust from clients. Additionally, launching a crowdlending platform in the UK requires compliance with licensing conditions. Licenses issued in the UK are recognized by regulators worldwide.

Malta:

Amidst the European Union countries, Malta is a popular jurisdiction for launching a crowdlending platform. European countries, in general, offer favorable regulation for crowdlending. Malta has its own rules and conditions for crowdlending companies.

As a member of the EU, Malta grants access to one of the biggest financial markets globally. This allows crowdlending platforms registered in Malta to provide their services to clients in other EU countries without the need for additional licenses. Malta offers some tax benefits for financial companies, including crowdlending platforms. This can reduce the overall tax burden and makes Malta attractive in terms of financial stability.

Furthermore, the country is developing infrastructure for financial services and technologies, providing access to technical support and professional services, which can be crucial for the successful operation of a crowdlending platform.

Other Countries:

Establishing a crowdlending platform in the Cayman Islands, the British Virgin Islands (BVI), and El Salvador is an interesting choice for those focusing on crypto. These jurisdictions are known for their low-tax regimes, allowing companies to reduce tax obligations and increase profits. They apply less strict regulation to cryptocurrencies, making it easier to launch and manage such businesses.

Among crypto investors, the Cayman Islands are of particular interest. Launching a crypto crowdlending portal in the Cayman Islands can be advantageous for several reasons:

• Tax incentives: there is no tax on profits from cryptocurrency operations in this jurisdiction. This means that companies engaged in crypto crowdlending can enhance the profitability of their business.
• Asset protection: the Cayman Islands are known for their robust legal system and financial infrastructure, making them promising for storing and protecting assets associated with cryptocurrencies.
• Geographical location: due to their proximity to the USA and other countries, the Cayman Islands provide good communication links and access to international markets.

The favorable tax environment of the BVI has long been a magnet for international business. The BVI imposes no corporate income tax or capital gains tax, which can significantly reduce tax obligations if you decide to create a crypto crowdlending platform in the BVI.

The British Virgin Islands have a stable legal system based on English law, ensuring a reliable legal environment for business. The BVI is conveniently located close to the USA and other key markets, facilitating access to investors and clients worldwide.

El Salvador

It drew global attention in September 2021 when it became the first country to officially adopt Bitcoin as legal tender. This move sparked widespread interest and prompted other countries and organizations to discuss the role of cryptocurrencies in the global economy and financial system.

Launching a crypto crowdlending platform in El Salvador can be an interesting and profitable decision, as the government takes steps to attract crypto investors and stimulate investments in the country. One such measure is the proposal of tax-free investments to attract international capital. These measures may include tax exemptions on profits and capital investments for companies engaged in cryptocurrency-related activities.

The government's goal is to strengthen the country's position as a supporter of innovations in the cryptocurrency and blockchain space. However, such initiatives raise questions related to financial system control and the fight against money laundering. Our team of experts is monitoring developments in El Salvador and is ready to provide guidance on any issues related to launching crypto projects in this country.

By the way, when talking about creating a crypto crowdlending platform, it's worth mentioning Malta again. Malta has been attracting attention in the crypto business world for quite some time due to its strategic geographic location in the Mediterranean, making it a vital transit hub between Europe, Africa, and the Middle East, EU membership, and favorable regulation of new technologies.

The Maltese government has introduced progressive and balanced regulation of cryptocurrencies and technologies, creating a reliable legal environment for companies and ensuring the protection of the interests of both individual companies and their clients. Malta also offers tax incentives for crypto businesses, including low corporate taxes and investment stimulus programs.

Choosing a jurisdiction for registering a crowdlending company is an individual decision based on the analysis of multiple factors, including the type of crowdlending, target audience, budget, and regulatory requirements. Before commencing operations, consult with legal professionals to ensure compliance with all necessary legislative norms.

Conclusion

Crowdlending is a relatively new concept that has gained popularity in the last decade as an alternative to traditional lending. This is attributed to several factors:

• Accessibility and convenience: the internet and online platforms have made crowdlending easily accessible for borrowers and investors. People can receive or provide loans from anywhere in the world by simply connecting to the internet.
• Capital accessibility: crowdlending provides entrepreneurs, startups, and small businesses with the opportunity to attract funding that might be challenging to obtain through traditional banks or investors.
• Diversity of models: there are several crowdlending models, allowing borrowers and investors to choose the financing method that suits them best.
• Innovative technologies: crowdlending can successfully leverage innovative technologies such as blockchain and smart contracts to enhance security, transparency in processes, reduce intermediary costs, and create a more trustworthy environment for all participants.

Creating and managing a crowdlending platform is a complex and multifaceted process that involves various legal actions. Additionally, it's important to remember that crowdlending has its risks and may not always be suitable for all types of projects or financial needs. Before participating in crowdlending, it is advisable to assess the benefits and risks of such an investment decision. Seek the support of TK Deal specialists if you are interested in registering a crowdlending company.