There are many different types of business funding available, but choosing the ideal one for your business can seem like an uphill task. For most business owners, the desire to achieve a higher credit over a short period has fuelled the spike in the number of non-traditional lenders.
At a glance, having several funding options is a great thing, but being spoilt for choice means that selecting the wrong one could spell trouble. One of the latest financing options is crowdfunding, a funding scheme that grew by more than 165% across the globe in 2014. Although many people consider it as a new financing option, it has been actually been around for quite some time.
Here’s everything you need to know about the differences between small business loans and crowdfunding
1. The fees
With conventional loans, the lending regulations on interest rates are strict. However, the final interest you will incur is dependent on your personal and business credit score.
Since the 2008 economic recession, banks have required consumers to provide personal guarantors whenever they issue loans and not solely rely on business financial capability.
Crowdfunding, on the other hand, has fees that are outlined on the crowdfunding website. Overall, these fees paid to the crowdfunding platform typically encompass a small percentage of the total amount raised.
2. Application process
The application for a business loan usually takes between one and three months. You will be required to provide documents of your tax returns, down payments, financial statements, as well as your business plan.
With crowdfunding, the campaign period is set up by the platform you’re using. The company that owns the campaign will decide the length of time that is best for the campaign.
3. Your marketing strategy
A business plan outlines how you are going to generate revenue and how you will be able to repay the loan. While this process may entail much planning, you won’t have to be market-savvy as a detailed report can do the job for you.
With crowdfunding, however, you will need a solid marketing campaign to have your application accepted. This is because some platforms will dismiss applications that do not show a clear and full picture of what their business may look like when they hit their required funds.
4. Loan requirements
When you apply for a conventional loan, like an instant cash loan, the licensed moneylender may require proceeds that are relevant to the loan application, such as what you intend to use the money for, as well as reports on revenues, credit scores, and collateral.
With crowdfunding, you will have to notify the donors on how you intend to use the loan, and it is typically a quicker process than applying for a conventional business loan.
Without a doubt, there are associated pros and cons with both crowdfunding and conventional loans. When considering these options, the key is to understand your unique business needs. Careful consideration of what you intend to do with the funding, as well as your business needs, will ensure that you have the best chance of funding your business in the best way.