It is a wonderful thing to have so many different options when it comes to funding your business ideas, or expanding the reach of your already-operating business. With this said, some funding options are better than others – this is especially true depending on what stage you are in, and what your cash flow and working capital look like.
In particular, we’ll take a look at loans and crowdfunding in order to understand what each brings to the table. The latter is considered to be a form of non-traditional funding, and has shown to stack up quite well against the tried-and-true alternatives that have a great deal of history behind them.
What, Exactly, Is Crowdfunding?
It is a form of aggregate funding in which you petition prospective consumers to make pledges/donations to you in the beginning stages of your business. Usually, you will need to have enough done to pique the interest of these investors; because they will be receiving products or equity once your business gains a measure of success. You will need a crowdfunding platform to do this efficiently; otherwise your attempts will devolve into the dreary and costly (time-wise) work of fundraising.
One of the benefits of crowdfunding is that the results of your petition may actually save you a lot of time and money if you are unable to pique the interest of enough investors to start it. The downside is that you WILL have to work to get interest up, which means proof-of-concept, a working model (perhaps), lots of social media, etc. Basically – you need a robust marketing plan.
The Business Loan Alternative
You already know how loans work if you’re going into business; your first credit card gives you most of the general information. The upside to a bank loan is that you don’t need all this effort for the purposes of promotion in order to secure funding, and thus this energy can go into your business. However, the advantage that crowdfunding has over it is that you needn’t worry about interest payments potentially stifling your growth, or being loaded down by debt if you don’t succeed in business. In a sense, crowdfunding lets the investing public shoulder much of the risk for you.
Ultimately, it’s a matter of which one you prefer – as well as the stage at which your business resides. In the battle of loans vs. crowdfunding, each one has their pros and their cons.