How does the investor use Crowdfunding?

Investment crowdfunding is commonly divided into 2 kinds: Equity and Debt. When a project uses equity crowdfunding they seek equity investment from a large pool of investors online. The project owners or “issuers” give the investors an equity portion in their company in exchange for the funds invested. The investors can benefit from this model because there is no need to be an accredited investor to invest.

For debt based crowdfunding, a person seeking a loan will place their requested loan amount on an appropriate platform that provides crowdfunded loans, also known as Peer-to-Peer (P2P) loans. The loan amount is produced by several portions of the total amount being contributed by various members of the crowd. The interest amount and the repayment period will be determined by the credit score of the borrower. This score will be produced by the platform based on personal information gathered from the borrower. This method gives investors the opportunity to create a portfolio of loans to various people in order to diversify the default risk.