Crowdfinance is crowdfunding with financial return. The types of funding can be categorised in (convertible) debt crowdfunding or equity crowdfunding.[1] Crowdfunding in the form of donations or presale are not in scope of crowdfinance.
A debt-financed project offers investors a fixed repayment scheme of interest and principal (finance) repayment based on the interest rate, the loan term and the repayment type. Every period interest is calculated based on the outstanding debt (investment minus principal repayment). There are three standard types of repayment.
Annuity debt repayment - An investor gets paid a fixed amount (interest plus principal) every period. In time, the principal amount increases and the interest amount decreases because of the principal repayments. File:Crowdfundpanel.com - Repayment type - Annuity.pngAnnuity debt repayment - An investor gets paid a fixed amount (interest plus principal) every period. In time, the principal amount increases and the interest amount decreases because of the principal repayments.
Linear debt repayment - An investor gets paid a fixed amount of principal every period but the interest amount decreases because of the principal repayments. File:Crowdfundpanel.com - Repayment type - Linear.pngLinear debt repayment - An investor gets paid a fixed amount of principal every period but the interest amount decreases because of the principal repayments.
Bond debt repayment - An investor gets paid the total amount of principal at the end of the loan term. Every period before the end of the loan term an investor gets paid a fixed amount of interest. File:Crowdfundpanel.com - Repayment type - Bond.pngBond debt repayment - An investor gets paid the total amount of principal at the end of the loan term. Every period before the end of the loan term an investor gets paid a fixed amount of interest.
Equity crowdfunding
An equity-financed project does not offer a fixed interest rate or have a loan term. An entrepreneur offers a share (finance) of his company in return for a proportion of his dividends. A startup company or small business should pay dividends only if it’s making a significant profit (economics).
Convertible debt crowdfunding
A convertible debt-financed project offers investors a bond debt repayment scheme based on a fixed interest rate and loan term. At the end of the loan term the investor is able to convert the loan into equity with a pre-defined discount. An investor can also choose to get the total amount of principal repaid.
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