Although similar, crowdfunding (which usually refers to equity crowdfunding) and marketplace / peer-to-peer lending (sometimes referred to as “digital lending”) and different in certain key respects.
Peer-to-peer lending – how it works: The term, “crowdfunding” is typically used to refer to the manner in which a deal is marketed to investors and the number of investors who participate in the deal. Most real estate equity crowdfunding platforms are “price takers”, offering to investors the investment terms that are dictated by the deal sponsors raising the money on the platform. Unlike equity crowdfunding, “peer-to-peer (P2P) lending”, also known as “marketplace lending”, refers to the manner in which a loan is sourced, underwritten, marketed to investors and serviced post origination, all of which relies heavily on technology, hence the term, “FinTech”, used to describe the industry. (The loan may or may not involve multiple investors; P2P platform operators are indifferent.) Whereas crowdfunding platforms are “price takers”, P2P lending platforms are “price makers”, setting the rate and terms of the loans they originate within the constraints of a competitive marketplace. P2P lending platforms not only vet the deal sponsors, but also underwrite the deals themselves.