Debt Crowdfunding

Debt Crowdfunding is a way of raising money to finance projects and businesses based on small loans, ranging from high interest to low or no interest. People and companies typically utilize debt crowdfunding platforms to raise capital when they can predict cash flows to repay their lenders. 

Debt-based crowdfunding vs. rewards and equity crowdfunding

Debt-Based Crowdfunding is not Rewards-Based Crowdfunding, also known as Creator, or Project Crowdfunding. People that raise money for projects on sites like Kickstarter are not expected to pay the money back. People that raise money on sites like Kabbage are expected to repay the loan.

Equity crowdfunding involves similar mechanisms to Debt-based crowdfunding, but the capital raised involves a loan vs. the sale of securities in a private company.

Lenders who loan money through debt-based crowdfunding platforms do not end up gaining an ownership stake in the company (unless the crowdfunding platform provides convertible debt, which is a form of debt that converts into equity). When companies use debt-based crowdfunding, they do not give up any ownership and the capital is therefore considered “non-dilutive,” meaning that for creators with companies, they do not give up any ownership to providers of this type of finance.


Rewards crowdfunding is also non-dilutive, and as mentioned above project initiators are not expected to pay their funders back.


Debt-based crowdfunding vs. microfinance

Microfinance is a unique type of alternative capital that may be offered in crowdfunding format, or directly from a financial lending institution. Some debt-based crowdfunding platforms are microfinance platforms, like Other microfinance organizations fund small business people directly. Because of the predominance of microfinance within the impact investment universe, we will cover this type of capital separately. 

Debt-based crowdfunding vs. peer-to-peer lending

Debt-Based Crowdfunding may also include Peer-Peer lending, but this type of capital is typically between two people, rather than a business entity. For the purpose of this analysis, we are focused on Debt-Based Crowdfunding available to small and emerging business entities.

Example Debt Crowdfunding Platforms

Funding Circle | Kabbage | Lendio | OnDeck | StreetShares 

Is Debt Crowdfunding the right capital for your business at this stage?




Key Performance Indicators




Key Performance Indicators

When it Works Well

Speed of transaction

The better crowd-funded platforms for debt speed the decision process and are transparent about borrowing terms. Platforms like Funding Circle match institutional investors who would normally not be able to provide debt to small businesses.

Financials ready

Unlike Rewards-Based Crowdfunding, Debt Crowdfunding platforms require you to share your financials as they will have to assess your creditworthiness.

Debt options

Debt Crowdfunding platforms specialize in debt and understand the offerings well, and therefore provide a range of debt products, including both secured debt (anchored to collateral or accounts payable) and unsecured (not backed by collateral).

Challenges with Debt Crowdfunding

High fees

If a company seeks debt without strong revenue or collateral, it may end up paying the high end of fees (99% Annual Percentage Rate from Kabbage for example).

Less access to government loans

Many debt crowdfunding platforms are new startups themselves and may struggle with sudden economic shifts. For example, platforms struggled to deliver the government’s PPP loans in the US during COVID19. Small businesses that had already established relationships with traditional banks were more successful in receiving their loans.

Insolvency risk

Equity investments are not structured for repayment, but debt instruments are. If your company struggles through a difficult period and misses loan payments, there are consequences that may lead to bankruptcy.

Trends in Debt Crowdfunding

Use of machine learning

The rise of companies like Kabbage and Funding Circle was driven by the use of machine learning to make use of alternative data and automated real-time decisions.

Personal loan crowdfunding

Peer-to-peer loans are set up to support individual people. More and more early-stage founders are using these types of loans to start their businesses, vs. the use of credit cards or second mortgages.  

Sub-prime borrowing

The use of alternative data gives Debt Crowdfunding platforms and companies the ability to evaluate “creditworthiness” outside of the data provided within personal credit and business risk scoring. This enables some funders to reach small businesses that may have been turned down by loans.

Before You Consider Debt Crowdfunding

  • Do you have revenue and/or collateral and a track record?
  • Have you explored other types of debt to compare terms?
  • Are you fairly certain you would be able to repay the loan?

Exploring Debt Crowdfunding

  • Take a look at Kabbage (now owned by American Express), Funding Circle, and OnDeck to compare terms and offerings
  • Apply for a same-day decision on terms and compare notes with other types of debt products
  • Plan out your repayment schedule to figure out if Equity-Based Crowdfunding might be right for you, or if it compliments an overall capitalization strategy

Discover Alternative Capital

Compare Debt Crowdfunding to other types of crowdfunding and other types of capital. These capital types each represent one way to grow your company, and you can choose other capital types as an alternative or pair and combine at different stages of your business. Consider these alternative capital sources or explore our Capital Library.