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Lending-based financing models in...

The act of lending money, usually in exchange for interest. This could be an asset or venture the contributor is directly related to and willing to provide a low-interest loan (community funding). It can also be any venture or organisation looking for a loan from a group of individuals (crowdfunding). Public and private investment funds commonly lend money in exchange for interest (institutional funding). Apart from achieving a profit, making a positive social or environmental impact could be part of the goals related to the loan.

Guarantee schemes

An important instrument related to lending based financing models are guarantee schemes. These provide the certainty of repaying a portion of money lost by investors, most commonly in the case of loan defaults. These are used to reduce the risk for the investors and thus making investing more attractive. A guarantor can provide a loan guarantee to investors that (partly) repays their investment in case of a default. Different levels of governments but also NGOs and even insurance companies can be guarantors. Having a guarantee is extra attractive to community investors since those do not usually have the means to diversify their investments and reduce their risk. When guarantees are used, interest rates may be lowered to offset the costs of setting-up the guarantee scheme.

Community funding

In community funding the investors know each other and share a common project, space, entity or goal.

Community lending

In community lending, community members provide a zero-, or low-interest loan to get the project or enterprise off the ground. Another option is to provide a perpetual loan that doesn’t have to be repaid.

Property based community lending

In property based community lending, community members provide a loan to co-invest in a tangible asset such as real estate or a property.


In crowdfunding, small amounts of money are raised from large amounts of people to fund a project or company.


Also known as peer-to-peer (business) lending. Crowdlending is the practice of lending money to individuals or businesses through an online platform, sometimes using a collateral to reduce the risk of providing the loan. It is the most common form of crowdfunding because loans are easier done on objective criteria than other forms and most entrepreneurs and investors understand this model best. The crowd consists of individual investors who invest small amounts of funding. Typically a debt instrument such as a loan or a bond issued by the company is used. In return investors receive interest on fixed moments and the loan is repaid according through a fixed schedule, or fully at the end of a predetermined period. Often institutional investors use crowdlending platforms too to automatically invest the funding in a large group of companies.. This is called marketplace lending.

Real estate crowdlending

Also known as peer-to-peer crowdlending. Individuals provide subordinated-debt financing for real estate through an online platform. Usually secured against the property as collateral.

Institutional funding

Institutional funding includes venture capital and bank financing but also any other funds made available by companies, charities, governments and family offices.

Venture debt funding and convertible loans

Venture debt funding is the typical investment form for companies needing 500.000 up to 10 million euro. Usually loans are provided to companies that have reached their scale-up phase. Venture capital and debt funds typically manage the funds of other people, focus on specific industries and often operate across borders. They can be easily contacted but competition is high.

Convertible loans can be converted into equity based on a specified number of shares. In mezzanine financing the interest rate depends on the success of the company and thus allows for more flexibility.

Family office debt funding

Family offices are an atypical kind of fund. These funds manage the capital of wealthy families and are more flexible than other funds. Apart from regular loans they may provide all kinds of financing solutions including grants and investments. A personal introduction is important to get access to a family office.

Revolving funds

The most ‘circular’ funding models are the revolving funds. These funds usually operate in specific sectors such as sustainable energy. After receiving an initial amount from shareholders, donors or creditors they operate on reusing the reimbursements of investments made and loans provided. This way a continuous cycle of investments in projects under s similar scope is established, and deep knowledge on what works in a given sector is generated. Successful project owners know that their success generates new opportunities and expands their impact.

Direct lending

In direct lending, a financing intermediary gives out a debt instrument to investors. The incoming funds are used to finance projects and companies directly. Investors receive a fixed monthly or yearly interest. Direct lending allows investors to spread their risk as their money gets combined and then spread out across multiple projects. This is also called debt financing, or third party financing as the investor has no direct relationship with the projects and companies the money is invested in.

Balance sheet lending

In balance sheet lending, the (online digital ) platform or investment fund provides direct loans to individuals or business borrowers, possibly secured against a property. The difference with direct lending is that the funding comes directly from the balance sheet of the investment company. With direct lending the platform is just the matchmaker and intermediair between the investors and company. Balance sheet lending works therefore similar for an entrepreneur then applying for a bank loan, but tends to be faster. The financial statements can for example be partially checked by an algorithm and the decision making process can be one quicker due to less levels of agreement needed.

Invoice trading

Funders purchase invoices from businesses at a discounted rate. This can be done on a traditional way by including all invoices or by selling individual invoices (American Factoring)

Impact bonds

When investors seek to achieve specific non-financial goals they may issue impact bonds. These are debt instruments that may operate without interest. In impact bonds the investors take on the additional risk of a project, and the government payout after the project depends on its success. These can be measurable impacts or cost-savings.

Impact bonds are an ideal way to reduce the risk for the government by letting the market take on the risk of achieving success. Examples are green bonds, related to the sustainable energy transition, or social impact bonds, related to specific social goals. Normally these impact bonds are executed by large investors due to the complexity of the proposal and conditions.


Leasing is a specific form of lending. The lessee (end-user) obtains the use of assets and pays periodic payments in return. The lessor receives the payment and is responsible for the asset and any associated costs. Also in a financial lease, the lessee uses the asset for the duration of the lease agreement, while the lessor maintains ownership.

Soft loans

Soft loans are loans below market rates. Usually these also have longer payback periods and tend to be derived from public funding to facilitate investments.

Revenue based financing

Another surprising reward-based financing model is revenue-based financing. This ‘founder-friendly’ loan acts like equity. It shares the risk and does not have to be repaid in a predetermined structure. Yet the investor receives no shares or voting rights as is common in loan-agreements. Instead a percentage of turnover is agreed to repay the loan. A cap can be implemented to limit the total amount that has to be repaid. 

Match funding

In match funding, governments or other organizations match the funding generated by other investors. It can be done in all forms of capital but the most common forms of government involvement are grants, subsidies and guarantees.[1] Governments may also co-invest in a public-private investment fund which in turn invests in projects and businesses.

[1] CrowdThermal D3.2

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