Since the end of April, crowdfunding platforms, which have the status of intermediaries in participative financing, have been able to grant state-guaranteed loans, just like banks. The results are mixed, however, and only the two French leaders in the sector have fared well.
Participatory financing and government guarantees
Thanks to an amendment passed by the Senate on April 22, 2020, participatory finance platforms have been able to join the scheme for granting state-guaranteed loans.
In practical terms, they continue to act as intermediaries between lenders and borrowers, the lenders being either private individuals or institutional investors, and the borrowers SMEs. But from now on, the money lent is guaranteed by the State.
This measure was intended to help crowdfunding platforms cope with the health and economic crisis. With the confinement, most SMEs had put their projects on hold, preferring to postpone their financing requests.
What's more, the introduction of state-guaranteed loans, initially granted only by banks, created significant competition for participatory finance platforms.
Mixed results for crowdfunding platforms
A few months later, the results are mixed. The two French leaders, Crédit.fr and October, were the main beneficiaries of the scheme: for October, government-backed loans accounted for no less than 95% of financing applications, and 40% for Crédit.fr.
For other players in the sector, however, the benefits have been much more anecdotal. This unconvincing track record is largely due to the unbalanced competition with banks, which offer state-guaranteed loans at a rate of 0.25% for the first year, compared with 2% or more for crowdfunding platforms.
What's more, government-backed loans are not financially attractive for platforms, which cannot make a margin. The main challenge is therefore not to lose visibility or credibility in relation to banking institutions.