What is crowdfunding?
Crowdfunding (crowdlending) is an alternative method of financing that involves bringing together a project promoter looking for funding and investors looking for a return.
BeeBonds organises two types of public offerings:
1. Bond issues, which involve putting the project promoter in direct contact with investors. The issuer issues a debt security (in this case a bond) and the investor then holds one or more bonds (securities).
The investor acquires the status of creditor of the Project Promoter.
Investor lends to Project Promoter
2. Lending through a financing vehicle or special purpose entity. BeeBonds' financing vehicle is called BeeBonds Finance. In practical terms, the investor invests in the financing vehicle (BeeBonds Finance), which in turn uses the funds received to lend them to the project promoter chosen by the investor.
This method avoids the project promoter having to deal with several lenders and only one Beebonds Finance contact.
The investor acquires the status of a creditor of BeeBonds Finance and no longer directly of the project promoter.
Investor lends to Financing vehicle which lends to Project Promoter
What about interest?
BeeBonds' participative financing is structured as a 'bullet loan', meaning that interest is paid annually.
For example, if you invest €10,000 in a project with a gross annual interest rate of 8% for 3 years, the return on your loan will be €800 gross per year.
- The 1st year, 800 euros
- The 2nd year 800 euros
- The 3rd year 10,800 euros
What about taxes?
Like most interest received by an individual resident in Belgium for tax purposes, interest generated by crowdlending is subject to a tax deducted at the source, known as a withholding tax, which amounts to 30%. This tax is collected by the investment company (BeeBonds) and paid directly to the tax authorities. In this way, investors receive net interest that does not need to be declared in their tax return.
Let's talk about risk
Like all investments, crowdlending involves a risk of total or partial loss of the capital invested.
Similarly, the interest rate and payment of interest are not guaranteed, unless otherwise stated in the key investment information sheet published for each project.
Overall, crowdfunding services are not covered by the deposit guarantee scheme established in accordance with the relevant European directives and securities or instruments admitted forcrowdfunding purposes acquired through a crowdfunding platform are not covered by the investor compensation scheme established in accordance with the relevant European directives.
What about the risk incurred if the crowdfunding is done through the BeeBonds Finance special purpose entity or financing vehicle?
Each project financed through the financing vehicle is compartmentalised, which means that a failing project can under no circumstances contaminate the other projects held by the vehicle, and that's a good thing!
On the other hand, adding an intermediary to the loop adds the risk of illiquidity of the intermediary to the risk of default by the project promoter.
What about liquidity?
A financial asset is said to be 'liquid' when it can be bought or sold quickly without having too great an impact on its price.
The bonds (transferable securities) offered by the project promoter as part of a fundraising campaign organised by BeeBonds are assigned an ISIN code, which is the bond's identification code. This ISIN code enables the bondholder to trade freely on the Euronext Expert Market, the secondary market for unlisted securities.
Of course, there is no guarantee that you will find a buyer or that you will recover the value you invested at the outset.
We therefore consider that the product offered, although 'liquid', should be described as 'not very liquid'.
What about the subordination of your claim?
The question arises as to the role of investors participating in the financing of a project via a crowdfunding platform.
In this context, the claims are subordinated, which means that they come after priority claims such as the tax authorities, banks in most cases, etc.
Of course, this information needs to be qualified according to the guarantees and securities put in place for each project, but the rule remains the subordination of the claim to the so-called priority claims.
How much should I invest per project?
We recommend that you take care not to invest amounts that you will need for your short- or medium-term projects, and that you invest a reasonable proportion of your net assets (excluding property) per project.
Your money will generally be committed for a period of 2 to 5 years.
This prudent approach allows you to diversify your investment portfolio and minimise the risks associated with each project.
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