Business Crowdfunding in the EU: Costs and Legal Risks
Crowdfunding is often presented as a more flexible alternative to a bank loan. Current platform listings and investment offers show that this form of financing remains active, particularly in real estate. Projects are based not only in Lithuania, but also in countries such as Spain, Estonia and Latvia. A platform can give a business access to a broader pool of investors, and in some cases the process can move faster. However, easier access to capital does not mean simpler obligations. Before launching a campaign, a business should assess not only whether it can raise the required amount, but also the full cost of financing, the scope of disclosure required and the consequences of failing to meet planned targets on time.
One common mistake is to compare only the interest rate listed on a platform with a bank’s offer. The actual cost may also include platform, administration and campaign preparation fees, the cost of providing security, early repayment terms and additional reporting obligations. The repayment schedule matters too. Even an attractive interest rate may not help if payment dates do not align with the company’s cash flow. Businesses should therefore compare the full financing package, not just individual figures.
Under Regulation (EU) 2020/1503, a project owner must prepare a Key Investment Information Sheet (KIIS). It sets out information about the project, its financial position, the terms of the offer and the main risks. Promotional communications must also be clear, fair and not misleading. This is particularly important when preparing growth, revenue or project return forecasts. These should not be presented as guaranteed outcomes, and the assumptions behind them should be explained. If investors’ decisions were influenced by inaccurate or misleading information, the issue could develop from a reputational concern into a legal one.
The fact that a platform is authorised does not necessarily mean it will guarantee the project’s success or the business’s ability to repay the funds. Authorisation means the service provider must comply with the requirements that apply to it; it does not remove the project’s commercial risk. Businesses should also bear in mind that once a campaign is made public, its financial information will be assessed by investors with a wide range of experience. If the project is delayed or its results differ from forecasts, the business will need to address the financing issues and communicate with investors consistently.
If funds are raised as a loan, the company undertakes to repay the principal and pay interest on schedule, regardless of whether the project achieves its planned results. If financing is raised, for example, by offering shares, investors’ rights and the company’s legal obligations change. The form of financing should therefore be selected in light of cash flow forecasts, existing debt levels, the governance structure and plans for raising capital in the future.
Crowdfunding may be suitable when speed matters to the company, it has a clear plan for using the funds and it can meet its obligations even under a more conservative scenario. If the decision is based only on the fact that a bank declined to provide financing or that borrowing through a platform seems easier, the assessment should be revisited. The key question is not whether the business can raise capital, but whether the chosen terms will remain manageable if the business performs worse than expected.
