CROWD2FUND launched a new “venture debt” product on Wednesday, which enables early-stage companies to access debt finance.
Encroaching on a sector usually dominated by equity crowdfunding, the new offering is targeted at high-growth companies that are not yet cashflow positive.
The peer-to-peer lending and crowdfunding platform said that venture debt will typically be used for a particular project, rather than cashflow funding.
Debt financing has advantages for these businesses, as it is simpler than raising equity and enables founders to keep control of their company, Crowd2Fund said.
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The first venture debt product to launch on the platform is Planks Clothing, a ski clothing manufacturer that is borrowing funds to purchase stock for the next ski season. The campaign has reached 85 per cent of its target within 24 hours.
Chris Hancock (pictured), chief executive of Crowd2Fund, told Peer2Peer Finance News that by using enhanced due diligence, many businesses traditionally rejected for debt-based financing are in fact eligible if the deal is structured correctly.
Interest rates on the loans will range from 10 per cent to 15 per cent and the venture debt opportunities are only available to sophisticated investors.
“This is a high-risk but high-return product,” said Hancock.
Borrowers and investors are given the same rate of interest, with borrowers paying extra fees for the service listing and once the funding target is achieved.
Crowd2Fund is fully authorised by the Financial Conduct Authority and was one of the first platforms to launch the Innovative Finance ISA back in April 2016. Last month, it said that 95 per cent of its investments are now made through the tax-free wrapper.
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