Abstract

     Lending business crowdfunding (LBC) is an innovative financing tool for small and medium enterprises (SMEs) and is especially useful in vulnerable and risky markets. To date, little is known about the information transparency and management dynamics of these new platforms, partly as a result of a lack of harmonization in the crowdfunding sector. This article draws on a qualitative multicase approach to map and classify the main characteristics of the credit supply provided by nine LBC platforms. The database is unique and makes this analysis particularly original. The study found some limitations to the information transparency on services offered to SMEs who could access LBC. Alongside this, some advantages emerged, such as the timeliness of the service, and some critical points, such as the high interest rates and the numerous fees applied to the crowd-borrowers. The study also has practical implications, allowing SMEs to carefully assess the costs and benefits of the LBC model.

Introduction

     The uncertain economic scenario aggravated by the COVID-19 pandemic is worsening firms’ conditions, compromising their financial sustainability and limiting access to bank credit (International Monetary Fund, 2020).

     Digital innovation in finance is playing a fundamental role in supporting companies in difficulty; in fact, traditional banks joined by FinTech, BigTech, and TechFin are expanding and diversifying their credit offer through technological platforms (Consob, 2018). These digital players are introducing new business models (Stulz, 2019) penetrating into market segments typically underserved by incumbent banks (Jagtiani & Lemieux, 2018) or in countries characterized by inefficient financial systems and regulatory vacuums (Ding, Kavuri & Milne, 2021). FintTechs are changing the structure of financial services through digital models, such as peer-to-peer lending (P2PL) (Frost, Gambacorta, Huang, Song Shin, & Zbinden, (2019). Funds granted through these new instruments can improve the financial sustainability of small and medium enterprises (SMEs), encouraging the implementation of innovative and sustainable projects.

     Specifically, in a postcrisis economy, the architecture of entrepreneurial ecosystems must evolve and focus on new financing alternatives (e.g., Crowdfunding and P2PL), ensuring the survival of successful businesses (Cicchiello, 2019a). Crowdfunding (hereafter ‘CF’) is intended as an “alternative” financial circuit to the traditional banking system, useful for economically supporting small firms (Fenwick, McCahery, & Vermeulenm, 2018; Havrylchyk & Verdier, 2018). Some studies highlight CF as a driver to encourage investment in new technologies (Brema, Bilgram, & Marchuk, 2019) or as a valuable tool to support social initiatives related to sustainability (Bento, Gianfrate, & Thoni, 2019).

Conclusions, limitations, and implications

     Using an original empirical framework, this study explores the characteristics of lending CF and creates a comparative map of the services and information that LBC platforms offer to crowd borrowers and crowd investors. Information asymmetries in the LBC model reduce the trust in the tool by potential users and, consequently, slow down the development of new financial products in the credit market.

     The focus of this study is on FinTech platforms in the Italian credit market, which showed growth from 2016 to 2021, considering the data from the PoliMi Report. The current nine pure for-profit LBC platforms in Italy were analyzed as case studies. The results show that the LBC is an alternative financial circuit to bank credit, even though banks in Italy still play a crucial role in the economy. As smaller and riskier companies are subject to rationing, FinTech in the credit segment is therefore an innovative, complementary, and useful solution to finance entrepreneurial, ethical and/or sustainable projects.

     Some specificities of credit platforms emerge from our original map. First, all platforms are subject to banking supervision and adopt segregated liability to protect customers. The players are concentrated in Northern Italy, highlighting a greater knowledge of the instrument by professionals and investors and the financial development of the area. It is not known whether this affects the geographic origin of customers, as there are no data on the matter and digital technology crosses geographic boundaries.