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Peer lending and crowd source funding are two alternative means by which businesses and individuals can secure investment capital without enlisting the services of the traditional banks. Even though the two share a similar concept of raising funds, many people fail to recognize that there are substantial differences between peer lending and crowd source funding. Without understanding the difference between the two, it can be difficult to realize which option is suitable for your needs. Peer lending deals provide capital by credit to already established businesses and/or real estate investors who are in need of cash injections for business or investment purposes. They offer a great alternative to traditional banks as they provide efficient and flexible means of accessing finance by the established enterprises. In peer lending, you do not have to give any form of equity. All you have to do is pay interests on the principle amount that you borrowed. In order to access these funds, you have to provide the financial information, why you need the funds, and the exit strategy enabling the loan to be repaid. Secondly, a form of security will be required just like most asset backed loans; i.e., capital equipment, real estate, cars, etc.. Crowd source financing, on the other hand, deals with providing funds for individuals who don’t have any existing business and have ideas that they need to get off the ground. In its early form, crowd source funding was mainly focused on providing assistance to investors and entrepreneurs who had ideas but did not have the financial capability to implement those ideas. In this case, those with the ideas would present their ideas to a group of investors and if interested, they would make contributions towards the proposals. Unlike peer lending, you do not pay back in interest, but rather exchange equity and profits to pay back those investors that made your idea become a reality. Another significant difference between the two is the fact that in crowd source funding, there are more risks and usually no guarantees exist that the original investment will be repaid. This is not the case with peer lending where an asset of equal or greater value must be collateralized before the funds are given. Crowd funding also operates within their confines as pre-vetted deals by a third party, whereas with peer lending all the processes are pre-vetted by your selected licensed professionals, and reviewed by you as final due diligence to ensure transparency for all the parties involved in the transactions. Peer lending is more of a self-directed investment for those investors that seek greater control and desire safe factors of lending, while crowd funding provides an additional upside with the inherent risk of an equity investment and allows passive investors to acquire pre-vetted deals by a third party they select to trust. For more information please visit Peer Investor
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