Must know about these complete details of Crowdfunding

If you are one of the people who keep thinking about the possibility of building a small business, making the one you have now grow or want to restructure your debt to pay less interest and what has stopped you is the lack of capital, then stay because this time we will talk about crowdfunding and how it works.

Let’s start!

Crowdfunding, what is it?

As its name says, it is a business model where many people decide to contribute their money to fund ideas, projects or invest their money in some way. This model has prospered because it addresses critical points that traditional banks are currently neglecting.

On the one hand we have to ask for financing for any purpose turns out to be tedious and unlikely to be approved, even if you have a good credit history. And on the other, the conditions that these institutions impose on their borrowers are very expensive or unkind (interest rates, payment terms, etc.).

What is debt crowdfunding?

The Debt crowdfunding is a collective financing method. Through this model, a group of individuals invest resources through a platform to grant monetary loans to other people.

The model presents some characteristics that differentiate it from other financing methods such as banking. And it is that being a collective financing, and not from a single entity, credit conditions can be betterand thus obtain, for example, lower interest rates.

Although the crowdfunding model can be seen as a method to obtain financing, one should not lose sight of the fact that it is also an investment channel. This is because as it is a collective funding platform, anyone who has savings that they want to put to work can bet their resources on debt crowdfunding, lend to other people, and with it earn competitive returns based on the rate paid by each credit acquirer.

It is important to say that debt crowdfunding works through technological platforms that are operated by a third party. This is responsible for offering the infrastructure so that lenders and credit applicants can interact. In other words, it is the arbiter that monitors issues such as credit granting, which includes studying the profile of those who request financing, and that the promised returns are generated.

Although the crowdfunding model is based on the premise that a group of people come together to finance others, schematics may vary a bit. For example, there are some platforms that offer those who want to lend the opportunity to invest a fixed amount for a certain period, to ultimately grant a return. There are other options in which those interested in investing open an account, pay a certain amount, and they decide who to finance, with the possibility of withdrawing the resources.

In this logic, for those who seek credit, there are debt crowdfunding options in which the financing request is entered, in a few days an answer is given as to whether or not it is lent. In other options, those interested in financing submit their application, if they are approved, they publish their desire to acquire credit, and each of the lenders will decide if they want to grant credit, and if so, how much. In this example, since it is collective financing, if one person asks for 10,000 pesos, more than one person can contribute resources until the raised amount is collected.

It is important to mention that debt crowdfunding can also be referred to as crowdlending.

Since when does crowdfunding exist?

Maybe it sounds like an innovative idea (which it is) and very recent, but in reality this business model has been on the market for a long time.

In accordance with foundable, an American anchorwoman, mentions that it all started in the 1700’s, but it was tangible for our us in 1997 in Europe when a rock band originally from Great Britain financed their tour with online donations from their own fans. And that was the first step, after that and as time progressed, more crowdfunding platforms were created with different purposes until it became something more serious in 2000.

Crowdfunding in Mexico It arrived several years later, in 2012 the first platforms that operated in our country were just being introduced. However, since then, they have increased in number and continue to grow.

Get to know the crowdfunding ecosystem

According to a Finder publication, a company that is dedicated to financial advice, we find 5 types of crowdfunding.

Donation-Based Crowdfunding

As its name says, cases are launched on the corresponding platforms such as GoFundMe in Spanish. Whether it is from people, groups and organizations with a cause, the objective is to obtain the target amount to achieve their objectives.

How does it work?

  1. You must open a profile on any platform that has this type of crowdfunding.
  2. upload your material
  3. Wait to gather the desired amount.
  4. Or you can just donate.

Rewards Crowdfunding

I think this is the best known case, surely you have ever seen Kickstarter videos, I recommend you watch some if you are not familiar with the subject. The idea is that this platform is the step for innovative and good quality products to hit the market for the first time.

For each deposit, a product is created and sent as a reward to the people who trusted.

How does it work?

  1. A profile opens on the platform.
  2. Launch a product, prototype or project.
  3. Enter the estimated amount to be reached or the target price.
  4. Carry out the production process.
  5. The product or result is sent to each sponsor.
  6. Or, you can only sponsor the project or product that catches your eye.

Peer-to-Peer Crowdfunding

Here are more financial profiles, such as loans between individuals, where the benefit can be varied: pay debts, pay for a trip, inject money into your business, etc.

The advantages of this way of requesting money is that the interest rates of a loan are low and as an investor (or who puts the funds for any project) you earn much more than in any other place that offers you a return on your money. A company that is doing this in Mexico is Ratebeing one of the best performing ones.

How does it work?

  1. What is your need: get money or earn money.
  2. Invest or request your loan.
  3. Wait for them to give you a personalized interest rate.
  4. You will begin to have an account statement of your investment or your loan.
  5. You earn time and money.

Equity crowdfunding

It is a way of specifically financing projects that are starting or about to be launched. The main idea is that investors who contribute capital receive a percentage of the company or startup. A well-known platform in Mexico is Play Business.

How does it work?

  1. A profile opens on the platform.
  2. Launch a product, prototype or project.
  3. Enter the estimated amount to be reached or the target price.
  4. Or simply be an investor and select the project that most attracts your attention.

As you can see, crowdfunding has a range of possibilities for various types of objectives, but the following points must be taken into account.

Advantages of crowdfunding

  • In some cases you can use social networks to promote your projects and thus impact a greater number of people.
  • The platforms also have communities or groups on social networks.
  • It is possible that you will get feedback on your project or products, both good and bad, that will help you improve it.

Disadvantages of crowdfunding

  • It’s not just about uploading your video and that’s it, you should also think of other ways to get more exposure to reach your goal. And in the case of investments, you require patience because it takes time to see the fruits.
  • It will always have a cost, it is not free. Each platform has a percentage of profit according to what is being collected or the yields that are generated, they are generally very affordable rates.
  • If you don’t know how to launch your campaign, it will probably only reach your family and friends.

Crowdfunding rates and amounts

Through debt crowdfunding, Those interested in obtaining a loan can access to financing ranging from 10,000 to 250,000 pesos. It is important to say that in this type of schemes, the interest rate is assigned in a personalized way, and is determined in relation to factors such as good credit history.

In this way, interest rates for loans through debt crowdfunding can range from 8 to 40 percent. The rate is defined in relation to the qualification obtained by each applicant. The better rating, the better rate.

real estate crowdfunding

Crowdfunding has various aspects. Debt crowdfunding was cited above, however, there is at least three other categorieswhich are: donations, rewards, and capital.

In this sense, one more type can be considered, which is the real estate crowdfunding. Like the other schemes, this is a type of crowdfunding, only investors do not contribute money to lend to other peoplebut to promote projects to develop housing, for example.

In this way, those interested in starting up a housing project, and who require financing, resort to this type of scheme to receive resources. so people They can contribute money that will be used to start the construction of the project, and that in exchange, they will receive some return.

crowdfunding platforms

Thanks to the irruption of technology, in Mexico there are currently at least a dozen crowdfunding platforms. Not all serve the same niche, as some are platforms to lend money, others to participate as investors in specific projects, such as real estate; there are other options than they are not for profitand what they are looking for are resources to fund some projects of a social nature.

On the subject of debt crowdfunding, that is, collective financing for personal loans, there are platforms such as This option offers those seeking financing credit ranging from 20,000 to 350,000 pesos, with rates ranging from 9.9% to 28.9%, all in relation to to the qualification obtained by each applicant.

Invest in crowdfunding?

Investing in crowdfunding is one of the most recommended decisions by experts nowadays. According to the specialists, these types of channels are ideal for people who have savings and seek to put the money to work, in schemes with wide certainty.

Some experts have even pointed out that investing in crowdfunding gives better yields compared to other instruments.

Among the advantages that are listed to bet on this type of schemes are, in addition to the returns, the security with which it operates.

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