Business finance is the life of any business. The world of business finance has evolved to a great extent. What we are referring to is the funding options that are available today for businesses. Gone were those days when we relied on secured and unsecured loans. Today, there are nearly over fifty financial products and services that cater to business loan requirements. Each of these products has unique challenges, merits, and demerits. In the article, we will cover details on crowdfunding and small business loans and how they can help your company.
Also Read: Reasons Indian Businesses Face Rejection for small business loans
Insight on crowdfunding
Crowdfunding refers to raising money from numerous people online. As the term itself says, large groups of people pull together to raise the investment required for a company. It is similar to raising funds for a cause. You need to have efficient skills in organising a group of potential crowds or people and pursue them to contribute small investments to accomplish a larger goal. This funding option can be opted for both launching a new business and an established business.
Here are some insights into crowdfunding :
- Crowdfunding Process
There are various crowdfunding platforms, and so are their requirements. Hence, it is crucial to ensure you have read and understood the fine print of the terms and conditions before you launch a campaign.
- Crowdfunding Platform
The crowdfunding process takes place online. The campaign strategy must be appealing enough to the crowd on online media to receive a better response. The business proposal or product you are launching should be promising enough for people to come forward and invest.
- Types of crowdfunding
There are two types of crowdfunding. They are premium-based and investment crowdfunding. Premium-based crowdfunding is seeking funds from people in exchange for some gift, acknowledgement, premium service, or early service or product offering.
Investment crowdfunding is a process of seeking funds from people in exchange for some percentage of a share of equity in the business. It’s up to you to establish what type of crowdfunding campaign you want to opt for. Good social contacts help you widen your campaign share and raise funds as required.
- Crowdfunding Repayment brief
You need to fulfil the repayment promises as assured once your campaign is closed. It is not only essential but crucial for your business reputation.
- Crowdfunding Charges
There will be a one-time percentage-based fee. It depends from platform to platform.
The more time you spend on your campaign, the more are the chances of reaching your goal through crowdfunding. It is not instant. Effort and patience are key here. Another factor to consider in crowdfunding is that when you set a goal for your campaign on the crowdfunding platform unless you achieve that goal, you receive nothing.
Crowdfunding is an activity that helps you gauge potential market share for your product. We all live in a competitive world. To derive the desired result, you must have a strong strategy and upfront effort. You even may have to pay to drive your campaign successfully. It is indeed good to explore available options. However, one needs to have clear insight into the process, the challenges, the solutions, the probable risks, etc.
Insight on Small Business Loan
Small business loans are something that we have been hearing about for ages now. It is one of the most reliable and convenient options for small businesses that are looking out to kick-start a project. The loan providers have become competent in what they are offering to borrowers today. For instance, competitive interest rates, the quick process, prepayment options, reliable charges, convenient mode of payment, etc.
Also Read: Factors That Affect The Eligibility For Small Business Loans
Requirements for a small business loan
When you have a plan in place, availing of a loan becomes easy. Below are some requirements to avail of a loan.
- Having a good credit score.
- Ability and intention to repay.
- History of sound financial records.
- The minimum age of the borrower must be 22.
- Business must be in operation for at least one year.
- Valid KYC documents as required by the lender.
- Bank Statement of recent six months.
- IT Returns.
Comparison between crowdfunding and small business loan
Certainty is what plays a vital role when you are in dire need of finance, especially concerning business. In crowdfunding, the result is vague. It purely depends on how your business campaign can take its place on social media platforms.
Social media is a large platform. It is not as easy as it seems to run a campaign on these platforms—the traffic, your business proposal, your repayment strategy, etc. The business is your primary focus, and the hurdles about finance are the last thing you would like to tackle. In crowdfunding, no matter how much effort you have put in to run your campaign, the result is uncertain.
In the small business loan process, The lender would take a minimum of one day to let you know your eligibility, the probable loan approved amount, interest rate, and other essential information.
Taking a small business loan need not be an obligation always. The loan is a commitment. If one understands this, then there is no looking back. If you have a good business finance record, you can avail an easy small business loan. And borrow the required amount with the flexible repayment option via equated monthly instalments.
Also Read: 5 Best And Fast Small-Business Loans
Businesses need a continuous flow of funds. It could be for acquiring physical capital, working capital requirements, clear other financial obligations, expansion, etc. Even the established businesses need that regular flow of capital to sail in the business journey.
Decision-making is one of the critical aspects of the business. Choosing the right lender who offers funds at reasonable interest rates can be a winning situation for you. We hope this article has helped you decide the wise option between crowdfunding and small business loans with respect to the source of funds for your business.