Crowdfunding Return Calculator

This calculator takes a headline return, subtracts an expected default rate and a platform fee, and compounds what is left. The gap between the advertised figure and the net one is the whole point: a platform quoting a gross yield is quoting the rate before either deduction, and both apply every year. Rates and default experience vary widely by platform, by loan type and by period, so the figures to enter are the ones a specific platform publishes rather than a category average.

On the sample figures, 10,000 at an 8% gross rate with 3% defaults and a 1% fee compounds at 4% net, reaching 12,166.53 over five years for a gain of 2,166.53. The same 10,000 compounding at 7% with no deductions would reach 14,025.52. That comparison is an arithmetic point rather than a market observation: an 8% headline with four points of deductions finishes below a 7% rate with none.

The risks sit outside the arithmetic. Money is usually committed for a fixed term, so it cannot be reached in the meantime; the platform itself can fail; borrower defaults cluster in downturns rather than arriving evenly, which is the opposite of the constant rate this model assumes; and fee schedules are not always stated in one place. Deposit-protection schemes that cover bank accounts generally do not cover these holdings. Equity crowdfunding behaves differently again, with returns concentrated in a small number of holdings rather than spread across them, which a single average rate does not represent.

A worked example

With the defaults: investment amount of 10,000, projected gross return of 8%, annual default rate of 3%, annual platform fee of 1%. The tool returns 12,166.53.

What moves the number most

The investment amount is exactly proportional, and the other four all act through the same net rate, which is the gross return less the default rate less the fee. Because they share one channel, a 1% relative move in each is worth a different amount in percentage points: 0.08 for the gross return, 0.03 for the default rate and 0.01 for the fee, in the ratio 8 to 3 to 1 at the sample figures. Measured that way the result moves 1.00% for the investment, 0.39% for the gross return, 0.20% for the term, 0.14% downward for the default rate and 0.05% downward for the fee.

On each field's own smallest step the ordering changes, because the steps differ in size. A half-point on the gross return adds 2.43%, a half-point on the default rate takes 2.38% off, one more year adds exactly 4.00%, which is the net rate itself, and a tenth of a point on the fee takes 0.48% off.

The formula behind this

The net rate is the gross rate less the default rate less the fee, and the future value is the investment compounded at that net rate over the term. Defaults are treated as a reduction to the rate rather than as capital lost, so the model spreads them evenly across every year instead of letting them fall where they actually would.