What is crowdfunding?
The field of financial services is continuously evolving nowadays. There are changes not only in the way we have been used to receiving services, but also new services are being developed. Crowdfunding is one of those new services.
Many prospective entrepreneurs encounter difficulties in obtaining a traditional bank loan to get their business ideas off the ground. In addition to other existing ways of attracting financing, an alternative way of funding – crowdfunding is gaining popularity. As opposed to traditional bank lending, financing is usually composed of very small amounts on a case-by-case basis contributed by a large number of investors; however, together it is also possible to attract a very substantial amount of funding.
Crowdfunding is therefore an important intermediation where a crowdfunding service provider, without a commitment basis, operates a publicly available digital platform to bring potential funders or lenders together with the companies seeking financing. Such financing takes the form of loans or investments in the capital of company.
Three types of participants are involved in the provision of crowdfunding services:
- the project owner proposing the project to be financed,
- the investors financing the proposed project,
- the crowdfunding service provider bringing together the project owners and investors on the online platform.
Crowdfunding services may be provided by a legal person who has obtained an authorisation granted by Latvijas Banka in accordance with Regulation No 2020/1503.