Crowdfunding or Crowdlending: Understanding the Difference for Smart Investing

Note: this article is educational in nature and does not constitute investment advice or individualized tax advice. Your personal situation (residence, income, amounts, and objectives) may modify the applicable rules. For significant amounts, consult a professional and verify official sources.

Crowdfunding and Crowdlending: Two Facets of Participatory Financing

Let’s start by clearing up the main misunderstanding. Participatory financing is the French translation of "crowdfunding"; it refers to all methods that allow a large number of individuals to finance a project via an online platform, without going through a bank.

It is the umbrella term.

Under this umbrella, there are several families, including crowdlending (the loan).

In other words: crowdlending is a form of crowdfunding, but the reverse is not true.

In common language, crowdfunding has come to specifically refer to forms that are not loans, such as donations and equity investments. This is the meaning I will retain here when contrasting the two terms.

Remember the logic: on one side, you give or invest in capital; on the other, you lend.

What is Crowdfunding? Definition and Functioning

Crowdfunding, in broad terms, involves raising funds from a crowd of contributors to finance a specific project. But behind this word lie very different realities depending on what the contributor receives, or does not receive, in return.

The Main Families of Crowdfunding

There are primarily three forms:

• Donation: you support a project without financial compensation. Sometimes you receive nothing (charitable donations), sometimes a symbolic reward or a product, which is referred to as reward crowdfunding.
  This is the model of platforms like Ulule or KissKissBankBank.

• Equity Investment (equity crowdfunding or crowdequity): you provide money to a company and become a shareholder. You hold a share of the company, represented by stocks or bonds.

• Loan (crowdlending): you lend money, which is repaid with interest. We will revisit this in detail shortly.

In this chapter, when I refer to "crowdfunding," I am primarily targeting the first two families, donation and equity.

How a Crowdfunding Campaign Works

The principle is always the same: a project holder publishes their campaign on a platform, with a fundraising goal and a limited duration. Contributors provide the amounts they wish. If the goal is reached, or according to the platform's rules, the funds are released, and the project holder uses them for their project.

The main difference lies in the compensation. In donations, it is symbolic or non-existent. In equity, it takes the form of securities: you bet on the future success of the company, hoping for a capital gain if it increases in value or pays dividends.

What the Investor Receives

This is the point to understand well: in equity crowdfunding, your gain is neither guaranteed nor regular. It entirely depends on the trajectory of the company.

If it takes off, the capital gain can be significant. If it fails, which frequently happens with young companies, you could lose all or part of your investment.

It is a high-potential investment, but with high risk and a long horizon (often five years or more).

What is Crowdlending? Definition and Functioning

The Principle of Paid Loans

Crowdlending, literally "loan by the crowd," involves lending money to a company, most often a small or medium-sized enterprise, via a platform.

In return, the borrower commits to repaying the capital, plus interest, according to a pre-set schedule.

Here, there is no shareholding: you do not own a part of the company; you are its creditor. This is a fundamental nuance, as it changes everything regarding return and risk.

The Concrete Functioning from the Investor's Side

In practice, the process looks like this:

1. You create an account on a platform and undergo an identity verification (KYC).

2. You deposit funds, then browse the published business projects.

3. You select those that interest you and invest, often starting from a modest entry ticket (from €50 on some platforms).

4. You then receive repayments, generally monthly, comprising a portion of capital and interest.

Regarding returns, the announced rates vary according to the project's risk and the platform: often between 5% and 10% gross per year in France, more on some European business loan platforms, which can display double-digit rates in exchange for higher risk.

Guarantees and Collaterals

Another significant difference from equity: crowdlending is often backed by guarantees. Depending on the projects, the loan may be secured by collateral, real estate, equipment, or a guarantee. Serious platforms display a key indicator, the LTV (Loan To Value) ratio, which compares the amount lent to the value of the asset pledged as collateral: the lower it is, the better protected you are in case of default.

Some platforms also have a provision fund intended to cover interest during payment delays — this is a minority practice, to be verified platform by platform. However, be cautious: a guarantee reduces risk, but never eliminates it. The resale of a seized asset takes time, and its value may have decreased in the meantime.

Crowdfunding or Crowdlending: The 5 Fundamental Differences

Let’s summarize what really separates these two approaches.

1. The Compensation

In crowdfunding, you receive a product, recognition (donation), or shares in the company (equity).

In crowdlending, you receive a debt: the right to be repaid with interest.

2. The Remuneration and Its Regularity

This may be the most concrete difference. In equity, the gain is potential, random, and deferred: it materializes upon the sale of the securities, if all goes well.

In crowdlending, the remuneration is contractual and regular: monthly payments known in advance.

3. The Level and Nature of Risk

In both cases, the risk of capital loss exists; this is the golden rule to never forget in investing. But its nature differs.

In equity, you bet on the success of a company: failure can wipe out your entire investment.

In crowdlending, the main risk is the borrower's default; it is often better "bounded" thanks to guarantees, but very real.

4. The Horizon and Liquidity

Equity is long-term (often five to eight years) before a potential exit.

Crowdlending offers shorter and varied durations, from a few months to a few years. In both cases, keep in mind a major constraint: your money is illiquid.

Once invested, it generally remains locked until repayment or project closure, although some platforms are developing secondary markets to sell positions.

5. The Taxation

The taxation of crowdlending in France is precise: the interest earned in crowdlending is subject to the flat tax (PFU) of 31.4%, unless opting for the income tax scale.

Gains from equity also fall under the taxation of securities.
A point to know if you invest via a foreign platform: your income remains taxable in France, but the reporting modalities may differ.

Comparative Table: Crowdfunding vs. Crowdlending at a Glance

Crowdfunding or Crowdlending: Which to Choose Based on Your Profile?

There is no absolute better choice, only the one that aligns with your objectives, horizon, and risk tolerance...

Crowdlending is right for you if...

• you are looking for regular and predictable income,

• you prefer a more understandable risk, framed by guarantees,

• you want to start with small amounts to familiarize yourself with participatory financing,

• you aim for a short to medium-term horizon.

Crowdfunding (equity) is right for you if...

• you accept high risk, including total loss, in exchange for significant potential capital gains,

• you invest for the long term and can lock up your money for several years,

• you wish to support projects or companies you believe in, even if it means betting on their growth.

What if you combined both?

The two approaches do not exclude each other; on the contrary! Many investors combine them for diversification: crowdlending for a base of regular income, equity for a more dynamic and speculative pocket.

The rule remains the same regardless of your choice: never put all your eggs in one basket, spread across multiple projects, sectors, and geographical areas, and only invest amounts you can afford to lock up.

How to Choose Your Participatory Financing Platform Wisely

The choice of platform is at least as important as the choice between crowdfunding and crowdlending. Here are the criteria to examine:

• Regulation and status.
  In the European Union, platforms for paid loans and equity investment must hold the PSFP (Provider of Participatory Financing Services) approval, issued in France by the AMF since November 2023, replacing the old CIP and IFP statuses. Outside the EU, other frameworks exist: in Switzerland, for example, platforms fall under Swiss law and may be members of a recognized self-regulatory organization (SRO).
  A framework we detail in our article “how to invest in Switzerland from France”

• Project selection.
  A serious platform conducts a rigorous screening of files and documents each opportunity: rates, duration, guarantees, risk analysis.

• Transparency.
  Repayment history, default rates, risk indicators: this data should be accessible.

• The guarantees offered and the entry ticket, which condition your ability to diversify.

Maclear, for example, is a Swiss crowdlending platform: it connects individual investors with European SMEs, starting from €50, in a framework regulated by Swiss law (a member of the self-regulatory organization PolyReg). Projects are backed by guarantees, with repayments made monthly. A point to keep in mind, applicable to any platform: a regulatory framework governs the activity, but does not guarantee your capital.

FAQ

Is Crowdlending Riskier than Crowdfunding?

Both carry a risk of capital loss. In equity crowdfunding, the failure of the company can wipe out your entire investment. In crowdlending, the main risk is the borrower's default, often better framed by guarantees and collaterals. The risk of crowdlending is therefore generally more "bounded," but never zero.

What Return Can One Expect from Crowdlending?

Rates depend on the risk and the platform: often between 5% and 10% gross per year in France, sometimes more on platforms for European SMEs. The golden rule: a high return always signals a higher risk.

Can You Retrieve Your Money at Any Time?

No. Your money is illiquid: once invested, it generally remains locked until repayment or project closure. Some platforms offer a secondary market to sell positions, but without a guarantee of quickly finding a buyer.

Crowdfunding or Crowdlending: Which to Choose to Start?

To start, crowdlending is often more accessible and clearer: low entry ticket, regular income, risk framed by guarantees. Begin with small amounts spread across several projects to familiarize yourself.

Can a French Investor Invest on a Foreign Platform?

Yes. A French individual can invest on a European platform approved as PSFP or on a non-EU platform, such as a Swiss platform. Check its regulatory framework, diversify, and keep in mind that your income remains taxable in France.

If you were to remember only one thing: crowdlending is a form of crowdfunding, centered on paid loans, while crowdfunding in the common sense more often refers to donations or capital investment. The former pays you regular interest with bounded risk, while the latter has you betting on the success of a project, with more potential but more uncertainty. It’s up to you to choose based on your profile, or to combine both in a diversification strategy.

Want to discover selected and regulated crowdlending projects in Switzerland? Explore the opportunities offered by Maclear.

The content of this article is provided for informational and educational purposes only. It does not constitute investment, financial, tax, or legal advice. Peer-to-peer (P2P) lending and crowdlending investments carry a risk of partial or total capital loss. Past performance does not predict future results. Liquidity on a secondary market is not guaranteed. Readers are encouraged to conduct their own research and consult qualified advisors before making any financial decisions. The availability of products and services may be restricted in certain jurisdictions.