The investment world is opening up new opportunities even for smaller investors. Crowd-investing and peer-to-peer (P2P) loans allow individuals to invest in projects, startups, or loans to other individuals through online platforms. These alternatives can expand a portfolio and increase diversification, with the popularity of P2P platforms growing annually. The question remains: can they truly contribute to effective diversification?

What Are Crowd-Investing and P2P Loans

Crowd-investing allows individuals to finance projects, startups, or business ideas through online platforms. It works on the principle of gathering smaller investments from multiple people, which together form the capital needed to realize a project. The main models include equity-based, where the investor gains a share in the company; reward-based, where the reward is a product or service; and debt-based, where the investor provides a loan with an expected interest.

Peer-to-peer (P2P) loans operate similarly but focus on direct loans between individuals or companies without bank involvement. The platform assesses the borrower’s risk and manages repayments and interest. Compared to traditional investments, such as stocks or bonds, these alternatives offer broader access to investment opportunities and often higher returns, while requiring an informed and cautious approach due to specific risks such as credit risk or lower liquidity.

Advantages
Crowd-investing and P2P loans provide access to investment opportunities that traditional investors often do not have. They allow investment in startups, smaller projects, or loans to individuals, creating room to expand a portfolio and reduce reliance on traditional markets. Many platforms also offer potentially higher returns than common bank products, such as term deposits or government bonds (for a deeper understanding of bonds, see our previous article). Another important advantage is the flexibility of investment amounts and time horizons, allowing investors to tailor their strategy to their own resources and preferences.

Risks and Disadvantages

Investing in crowd-investing and P2P loans carries specific risks that every investor should know. The main risk is credit risk, i.e., the possibility that a loan will not be repaid, which can lead to partial or total loss of the investment. Another risk is low liquidity, as it may not always be possible to withdraw the investment early. Regulatory differences between countries and platforms, which can affect investor protection or taxation of returns, are also significant. Therefore, experts recommend diversifying investments (more on the importance of diversification in our previous article) across multiple loans and projects to minimize risk and increase the stability of returns.

How to Start with Crowd-Investing and P2P Loans

The first step is to carefully choose a platform, considering fees, platform history, loan repayment success, and borrower ratings. Next, it is important to determine an investment strategy and risk profile, i.e., consider the level of risk the investor is willing to take and the expected return. A practical tool is a diversified portfolio, where investments are spread across multiple borrowers and types of loans. Useful tips include monitoring interest rates and default rates, investing only money that can be afforded to lose, and regularly adjusting the portfolio according to market developments. This systematic approach allows safe entry into the alternative investment segment and gradual building of a stable portfolio.

Regulatory and Tax Aspects

When investing, it is crucial to understand the regulatory and tax rules that affect returns and investment safety. Within Slovakia and the EU, rules define platform operations, provider responsibilities, and investor protection. Some platforms are supervised by financial authorities, while others act only as intermediaries. Returns from P2P loans are subject to taxation as capital income, and investors are required to report and tax them correctly. A thorough understanding of legislation and tax obligations is therefore essential for legal and effective planning of returns.

The Future of Crowd-Investing and P2P Loans

The crowd-investing and P2P loan segment is growing, with new platforms using modern technologies to streamline the investment process and more accurately assess risk. Digitalization allows investors to more easily monitor portfolios, analyze interest rates and default rates, while also reducing platform operating costs. The crowdfunding market is experiencing significant growth – in 2024, its volume was estimated at USD 2.14 billion and is projected to increase to USD 5.53 billion by 2030, representing an annual growth of 17.6%.[1] On the other hand, this segment is influenced by macroeconomic factors such as interest rate fluctuations, inflation, or recession, which may affect borrowers’ ability to repay. Nevertheless, with growing investor awareness of diversification and technological development of platforms, crowd-investing and P2P loans are expected to become an increasingly important complement to traditional investment portfolios.

For more investment trends and useful tips, see our previous articles on AxilAcademy.

[1] https://www.precedenceresearch.com/peer-to-peer-lending-market?utm