The finance industry, following the lead of the music and publishing industries, is the next sector subject to a complete overhaul. Technologies such as the Internet, social media and mobile banking have triggered the creation of new business models which will revolutionise the banking industry of the past centuries. The Crowdlending financing model offers small and medium-sized companies entirely new opportunities and provides private investors with a more transparent form of fixed-income investment.
Whether two-person operation or a company with 500 employees. Whether restaurateur, building contractor, metal constructor or IT-service provider – they all need funds: funds to buy material, maintain vehicles, buy new machines or expand their own IT infrastructure. But not every entrepreneur receives the desired corporate credit from his bank. The reasons for rejection of their financing plans can be quite varied; and which are not always the responsibility of the potential borrower.
In many cases banks reject financing plans with reference to the bank’s risk concentration being too high in a certain sector. In other cases the bank’s lending resources are already depleted. The entrepreneur is often left completely at loss of what to do after the bank’s rejection. The motivation to carry credit documents from bank to bank is naturally pretty low. Nearly every second entrepreneur stops looking for a corporate credit entirely after the rejection by his principal bank.
The new option. Here, the digital revolution has open up new paths with the Crowdlending finance model. Crowdlending refers to the mediation of credits through Internet platforms from private individuals to entrepreneurs. The advantages for the entrepreneur are obvious. He can comfortably organise his corporate credit online from his own desk. The entrepreneur registers his financing project on a Crowdlending platform and submits the relevant data and documents such as registration, annual business reports, business plans and credit needs online. Within three days there is a corresponding credit offer. Crowdlending offers entrepreneur an unbureaucratic, fast, and extremely simple process.
The digital marketing effect. However, that’s by far not all. Crowdlending is much more than a financing alternative to bank credits. Crowdlending platforms offer entrepreneurs a playing field for individual presentation and marketing opportunities. Those who aim to inspire others with their business model and financing project and choose a digital form of financing not only receive their funding but also a company film, which is free of charge. This way entrepreneurs can achieve additional coverage and convince investors and potential business partners with a professional presentation.
Online communication per video format is an ideal instrument particularly for customer acquisition. After all, most people will respond to the question, which sensory stimulus they are most likely to react to, by putting visual stimulus at the top of their list. Not without reason are online video portals such as YouTube or MyVideo among the most popular sites on the Internet. Videos even take up the largest amount of time spent online by private individuals, even more than text-based social media.
So why not use moving images as an online communication tool with potential new customers? Online videos for marketing purposes can play out their strengths in the age of storytelling and content marketing. However, the marketing videos should be kept brief as online consumers tend to have a very short attention span.
Crowdlending turns the bank’s anonymised financing process into individual project financing with private investors as creditors who believe in the business model, supplemented by an additional professional marketing effect, which can be used for customer acquisition. All this on the condition that entrepreneurs are willing to think outside the box and are forward-looking with regard to their financing and as a first step towards digitalisation.
The logical answer. Private investors have already taken the first step and permanently opened up to this alternative type of investment. This development was surely triggered by several aspects which have come up since the financial crisis in 2008: low interest rates and complicated and non-transparent investment products with a difficult to calculate risk, a lack of trust in the finance industry and a strongly fluctuating stock exchanges. Fixed-income investments per Crowdlending as an ingredient in the investment portfolio have become a real prospect for many investors.
The advantages are obvious here as well. Investors can obtain information on medium-sized companies’ credit projects online at any time and anywhere. The extensive presentation of credit projects in words and film also allows them to independently decide by themselves whom to entrust with their money and for which credit project it is used.
Every credit project, which is presented as a financing option, has passed a rigorous, multilevel audit process beforehand. The credit projects are separated into different risk categories, depending on the results of this audit, and then presented with all the relevant data. This allows the investor to calculate and judge the risks and the safety of the respective investment comparatively well.
Events of the past, such as cases in which savings were invested by the bank in American “junk real estate” without the investor’s knowledge are not possible with Crowdlending. For investors, Crowdlending is the logical answer to the undesirable developments which lead to the financial crisis in 2008. And for entrepreneurs, Crowdlending should become the logical answer to the question of the connection of finance and digitalisation.
Christopher Grätz is the founder and CEO of the kapilendo AG. Prior to that he worked at KPMG AG in the area of Strategy & Operations – Financial Services as a management consultant for five years and advised numerous major German and international banks and listed DAX-30 companies. Christopher Grätz received his Master’s degree from the renowned University of St Andrews. His professional career started with his training as a bank clerk at the private Weberbank AG in Berlin.