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I am guessing the crowdfunding site's fees are paid out of the raise? That they get a percentage of the money raised? Is that correct?
Vanessa Warwick Landlord and Co-Founder of PropertyTribes.com **If you have got value from Property Tribes, find out how you can support it in remaining a free to use community resource**
If I recall correctly ( I am happy to be corrected) there is an initial fee of £4500 for my application - that's 0.5% of the amount I was expecting to borrow - £900,000. Then they take 5% straight off the top of the amount raised = £45,000, as soon as it is raised.
Very interesting, and a lucrative business model for the platform. Something to ponder on in future!
I have not used the site referenced. I suspect the fee expressed in Sterling is a percentage of the loan amount being asked for. What are the amount being borrowed? If you are raising equity for what might be called a JV, the fee on a different site is 5% of the funds successfully raised. If anyone has raised funds before, 5% is very standard.
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If investors are investing in the form of debt, they should have security – which any subsequent lender would know about, and need to ask permission to take a subordinate charge. Being an unsecured debt investor isn't a good idea.
If investors are shareholders (equity investors), any subsequent lender should learn about this as part of their underwriting. It's up to them whether they want to specifically see the developer's own cash in the deal. In any case, the lender will be repaid before shareholders. Taking equity risk should mean a higher return for crowdfunders if all goes to plan.
Raising debt from the bank and all the equity from crowdfunding would theoretically be possible if all parties were happy with that arrangement. I'd suggest though that investors shouldn't be happy, for obvious "skin in the game" reasons
A nice summary Pau. How debt works vs how equity works. And how crowdfunding does not change things much.
As you alluded to, some traditional lenders are cool with the equity coming from the crowd (some or all). Some lenders are not. That is an internal business policy per lender. In all cases, the material details for where the equity has come from needs to be disclosed to a traditional lender if they happen to ask. In my opinion, they always ask.
In my case, I have invested in deals where the person or company running the deal has not had skin in the game if we define skin as cash. Their expertise or the brand value to them was enough to secure my cash. And I only invest what I can afford to lose. People can declare they are in or their are out on a case by case basis having seen the same information. I like the transparency of crowd funding.
This crowdfunding offer on https://www.simplecrowdfunding.co.uk seems to have hit the skids despite being 89.5% funded.
A planning application was submitted to Charnwood BC in June 2018 and according to the documents it looked like there were no objections and PP would be granted.
This is the planning reference P/18/1253/2
The application has recently been withdrawn by the applicant for a so far unpublished reason.
Investor will have to wait for a report to see if they have lost their money or if a revised planning application will be submitted...
John Corey invested so it would be good to hear his thoughts on this ?