Crowdfunding or P2P Lending – Which is Better for My Small Business?

Project funding. Financial opportunity, business and intertnet concept. Golden coins

When you are looking for funding, the dilemma use face is crowdfunding or peer-to-peer lending? This is the question many business owners are asking now that these alternative forms of business finance have become mainstream on the back of ineffective lending from the banks. So, the ultimate question then is, which method of finance would work best for you and your business?

Crowdfunding and peer-to-peer lending are two innovative ways to get money into your business. They’ve been making headlines over the past few years and it’s fair to say that you’ll have had to have been hiding under a rock for you to not have heard of at least one of them!

A lot of people actually don’t realize that crowdfunding and peer-to-peer lending are two very different beasts; both share the same principle of raising finance from a number of people who pool together, but it’s likely that one will better suit your business needs, depending on what stage your business is at.

If you’ve got a great idea and need some help getting it off the ground, crowdfunding is for you.

Crowdfunding is a great option for startups and early stage businesses. You “pitch” your idea or business to potential investors, and if interested, they will contribute a sum to the proposed venture. Then you decide how you want to reward those lovely people who helped you make it happen.

Crowdfunding in its earliest form focusses on helping entrepreneurial creatives and inventors to get their creative ideas off the ground. The people who chipped in and made their dreams a reality then given something in return, like a unique perk, a gift, or first dibs on their product. This is what’s known as reward-based crowdfunding – one to consider if you’ve got a cool little gadget you want to develop. Like all new things, the concept of crowdfunding has evolved into different forms, with investment crowdfunding now starting to grow rapidly. In this model, instead of giving a reward to those who helped, you actually give them equity in your business.

What will my business need to be crowdfunded?

Crowdfunding platforms will typically want a business with a business plan and financial forecasts from you when you make your pitch, so it’s important you get these in order.

If you did want to go down the investment route and release equity in your business, there are quite a few legal issues that you’ll need to deal with and you’ll also need to make sure you keep your shareholders in the loop with what’s happening further down the line.

If you’ve got an established business then peer-to-peer lending is the one for you

Peer-to-peer lending is a fast and accessible way of getting a cash injection into your business. The essential difference between this and investment crowdfunding is that you do not give away any equity, but rather pay interest on the money you borrow, much like you would with a bank. Whether your loan is for a piece of kit for your factory, purchasing a property, buying stock or even working capital, peer-to-peer lending for businesses offers the most accessible and flexible way of getting finance for established businesses. Peer-to-peer loans are usually funded by a number of different people

What sort of credentials will my business need to have?

Peer-to-peer lending is suitable for all established business. As part of the application, you’ll have to provide your businesses financials and reasons for why your business needs a loan. This information should be pretty easy to source, so by way of preparation there isn’t that much extra you’ll need to do.

Which would work best for my business?

In a nutshell, if you have a great idea that’s yet to get off the ground, then go for crowdfunding. But, if your business is well established and you’re looking for a business loan, then you’d be better suited to one of the peer-to-peer lending platforms.

As discussed above, you have two options.  Both are viable, but it’s important to evaluate the pros and cons of each model before you decide.

If you are a small business and looking for crowdfunding, in recent years sites like 40Billion.com, which specializes in promotion of small businesses, make this easy by broadcasting and promoting to its large network of several million users across the most popular social networking sites for small businesses — including Twitter, LinkedIn, 40Billion, and even Facebook. Innovative services like tweet ads and promoted company listings were created for entrepreneurs and crowdfunders to tap into a growing, active network online without spending thousands on pay-per-click ads or traditional advertising.

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