Get to know ‘Crowdfunding’ debentures, short-term investment in SMEs

There are many types of investments, such as stocks, and mutual funds, but there is another type of short-term investment with start-up businesses and SMEs that yields high returns. The investment is called ‘Crowdfunding’. 

What is Crowdfunding?

Crowdfunding is to raise funds from individual investors or institutional investors, not from banks or financial institutions. Crowdfunding is designed to support activities, projects or businesses. Investors will receive returns depending on the type and purpose of the fundraiser. The funding will be made through an intermediary known as Crowdfunding portal for easier and faster meeting of fundraisers and investors.

Crowdfunding is very popular abroad because, from the perspective of fund-raising applicants, this is a convenient way to access funds, especially for small businesses. Investors see it as an opportunity to diversify their investments.

Crowdfunding is a form of investment crowdfunding that raises funds by issuing debentures. Investors will be creditors and be able to receive interest and principal returns upon completion of the contract. There is the amount and repayment period that are appropriate for the size of their business, thus making investment risk lower than the loan.

How many types of crowdfunding are there?

There are 4 types of crowdfunding as follows;

1. Donation-based

The fundraising is usually for social or charitable purposes, so investors will not be rewarded because they invest money in support and assistance, such as Toon Bodyslam one step at a time to give money to hospitals.

2. Reward-based

It’s like paying for pre-ordering products that are not yet manufactured and initially have only the prototypes and ideas. Those who are interested in the product will invest in raising funds for the idea of making products to market and the investors will get a return. Currently, there is not only fundraising for the products only but also raising funds to make short films, games, music, and even comic books.

3. Peer-to-peer lending

It is a platform to raise funds between lenders (investors) and borrowers (individuals or entrepreneurs) with the platform acting as an intermediary to collect funds from borrowers following the Bank of Thailand’s agreement.

4. Investment-based

Equity-based fundraising for investors is equal to the right to own the company according to the proportion of money invested, and is eligible for dividends or can be resold. However, all of these are subject to the company’s policy.

The Company raises funds by providing debentures to investors, who will be the creditors of the Company and will receive returns on interest and return principal at maturity.

Debenture Vs Crowdfunding

General debentures are debt instruments issued by private companies or state enterprises in various types and conditions that can be invested at acceptable risk levels. The purpose of these debentures is to raise funds for the company’s businesses, such as for investment, expansion, equipment purchase or plant construction.

Crowdfunding is suitable for small businesses, SMEs, or startups, not limited to what type of business they are in but subject to risk assessment and risk classification of intermediate websites requiring a Crowdfunding license from Office S.E.C only because it is a form of public offering.

Crowdfunding is a win-win investment, but how much satisfaction with the outcome depends on the purpose of the fundraiser and investors. However, we will see the overall Thai economy becoming more active for sure because it allows small companies or interested parties to access funding more easily, making our country as innovative as foreign countries and even allowing SMEs to make more investments.

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