CROWDFUNDING & EQUITY

Businesses and real estate projects often fall outside of traditional banking parameters, and aren’t a good fit for a private lender. In these cases, borrowers become sponsors and seek equity. Equity can come in many forms.

Equity investments are also known as:

Though sponsors (borrower) may end up awarding equity in their business or projects that exceeds the cost of traditional or private money, sometimes it’s the best or only option for entrepreneurs. These borrowers desire to have a silent partner who expects to be paid out of the performance of the asset or project rather than by interest payments and balloon. Both parties typically acknowledge that this structure could deliver the investor much more of a windfall under successful circumstances. Likewise, both understand the risks that accompany an investment secured by equity.

The newest way to fund an innovative idea or project is through a peer-to-peer channel or “crowd.” Crowdfunding and peer-to-peer lending enables investors to fund portions of projects that appeal to them. There are several platforms, all of which have a defined niche.

There are sites like Kickstarter that have become renowned for entrepreneurs seeking capital. Those who “invest” aren’t buying into an offering, but basically signing up for a gift depending on the size of their contribution. Real Estate crowdfunding is more like a typical offering governed by a Private Placement Memorandum. Under this structure, qualified and accredited investors buy subscriptions in the transaction and do so for a monetary gain.

Most borrowers or sponsors seeking a crowd don’t know where to start. Funding Database has become an asset to these types of borrower and sponsors by offering consulting and legal services, and introduction to the platform most compatible with the project.