What is the difference between crowdlending and crowdfunding?
Crowdlending is when several investors together lend capital to a company that seeks funding. The loan is governed by a binding agreement that specifies the interest rate, the security and the loan term. Crowdfunding, on the other hand, means financing in exchange for ownership in the company. This means that you as an investor buy shares from the real estate company you want to invest in. Through crowdfunding, you become a minority owner of the company – without any real guarantee of getting your investment back. In most cases, no interest is paid and the security is the same as for any shareholder.
The big difference between these two is that crowdlending requires the property developer to guarantee pay back of the investment, including full interest, within the specified time period. Therefore, crowdlending is considered to have higher security than crowdfunding. For example, lenders are always prioritized before shareholders in case of default.
Why was the platform created?
Today many Swedish companies sit on attractive land plots and real estate projects that could help reduce the housing shortages in the Nordic countries. The problem is that it is difficult to finance real estate projects through traditional channels, such as banks and credit institutions. Our platform enables healthy companies with attractive projects to get the missing funding they need – in order to be able to build more and bigger projects than they currently can.
How does it work?
Today there are a lot of good real estate projects that isn’t realised because of the banks’ increasingly higher demands. The projects are not different – and in many cases, they are also not inferior to collateral – than competing companies that receive funding. Today, project owners often need to contribute with 20-30% more equity than required just a few years ago. It often translates into tens of millions of SEK, even for smaller projects.
Obviously, there are companies with good equity, but our platform is a good solution for them too, depending on how they choose to work with the equity they have. For example, a company can run multiple projects simultaneously – with the same requirement for equity – by financing remaining needs through the platform. In this way, the overall profit increases over the same period of time.
At the same time it is becoming increasingly difficult for investors to find stable investments that you don’t need to be an expert to understand. The fees seem to grow rapidly as well. By matching lenders with borrowers, the platform solves some of the challenges for both parties.
Loans on the platform often differ from many other offers because the risk is slightly higher. One of the reasons is that the demands on the borrower is somewhat lower, among other things through lower equity requirements. The interest rate on the projects advertised on the platform is therefore often much higher. On the other hand, higher demands are placed on the projects that are announced – especially in terms of collateral provided.
What type of loan can project owners publish?
The platform at the moment only allows for marketing of simple debentures.
Who is responsible for the content of material, marketing and offerings?
The project owner (with board) is responsible for the material published, the loan, the marketing and the offer. SBP Nordic only provides a digital platform and an advertisement space for the project owner – and has no responsibility or transparency in the loan structure, promotion or offer itself.
Lenders who have questions regarding a specific loan are welcome to contact SBP Nordic via the platform. We will then forward the message directly to the project owner. SBP Nordic does not provide any recommendations, advice or guarantees regarding any loans or projects. We also have no responsibility for or insight into the loan, the promotion or the offer.
Can I follow the project?
The property developer will have to provide borrowers with ongoing (quarterly) updates on how the project expires. The information is usually relatively short and transparent – typically no financial reports or key figures are communicated.
How does the loan work?
The characteristics of the loans vary. Therefore, it is important that the lender carefully reads – and understands – the terms and conditions of the loan. A loan has a borrower and a maximum of 200 lenders. The lenders collective investments constitutes the total loan amount. All lenders have a proportionate right to the possible mortgage or collateral attached to the loan.
The projects advertised on sbpnordic.com are associated with high risk. Project owners usually turn to us because they lack the equity that the bank normally demands as a requirement for continued financing. The loans advertised on the platform are associated with risks that the bank usually does not accept. This is also the reason why the calculated return is often significantly higher than other investments.
Those who are not used to investing in real estate and do not feel risky should always ask their financial adviser or similar before investing – alternatively, refrain from investing.The risk level in the projects varies, so it is often a good idea to lend a smaller amount to several projects and spread the risks. Lenders should be aware that the loan is always associated with risks and that all or part of the loan portfolio may be lost.
8-15 % interest rate, how is it possible?
The high interest rate depends on several factors. A common saying it that interest is the price of risk. Higher interest rates therefore usually also mean higher risk. Real estate projects seeking finance on our platform are in general companies denied further funding by the bank. The reason the bank says no is often due to the company’s short history or the banks general rules or not having enough equity.
Today, the banks requirements are higher – especially after the introduction of Basel III, which was developed after the financial crisis 2008-2009. This means for example that a project previously financed by banks up to 60 % today mabe only get financing for 40 %. In connection with this, equity requirements have become larger for construction companies in general.
Even though many companies today are sitting on good land with existing building permits, they are forced to build one project at a time. For each project they build, they can move profits forward into the next project. If they instead finance projects through several smaller lenders – they can often run multiple projects simultaneously. This is called leveraging your equity.
The leverage effect is the primary reason that construction companies can pay the high interest rate. For companies that have labor capacity, it is worth the high interest rate because they grow stronger faster – both financially and profile-wise. Today, many smaller companies are sitting on amazing projects. They have the same collateral to offer that the bigger companies have on their projects but lack the capital resources. The banks’ increased demands mean they have to say no to financing these projects.
For these companies, the platform becomes an important link to building more projects – and more completed projects are what the Nordic countries needs today to reduce the growing housing shortage.
How do I pay – and how safe is it?
You pay via a payment service provider. The money is protected in your own e-wallet until full collateral is taken for the loan. Only then will the money be paid to the project owner. In some cases, the capital can be transferred directly to an escrow account, this is specified in the terms of the loan. SBP Nordic does not under any circumstances receive any deposits or payments and never handles any capital for any party.
What is the role of the platform?
SBP Nordic provides a passive platform for marketing healthy Nordic real estate projects. Project owners use the platform to market their projects to potential lenders – the platform’s members. The platform or its operation does not in any way affect your investment since all agreements are concluded directly with the project owner.
Does SBP Nordic organize the loan that is marketed on the platform?
SBP Nordic (with partners) has no direct or indirect link, influence or responsibility over project owners or loan offers. SBP Nordic or partners do not represent the project owner or lender and do not give any recommendations – or statements – to any party regarding the loan offer.