Crowdfunding as an Alternative Funding Source
Most business owners today all face the problem of securing business finance. Almost any entrepreneur with a business plan who have done their research know about
the pros and cons of venture capitalists and angel investors. But these two sources of funds are not the
solution for most people. They typically
require you to show you have a proven track record of success in your field and
have already established a back of target customers to draw from. What happens if you don't meet these
requirements? How do you fund your
Very few project are able to be funded by venture capitalists and angel
investors as start-up companies. Because
of this what normally happens is the entrepreneur will put together a list of
his friends and family and ask them for “donations” to the project. They will spread the word to their friends
and business networks and help to get the project off the ground. But normally the person starting the project
is putting in the overwhelming majority of his/her own money to keep the
project alive. They will take out loans,
mortgage their homes, max out their credit cards or do anything they can to get
the cash they need to keep the project running.
As if it wasn't hard
enough to get funding for a start-up businesses project, the recent downturn in
the economy and the financial markets have made banks even more cautious when
lending money. If you do not have an
established reputation with your bank or lender then there is almost no way
they are now going to take a chance on you or your project.
However there is still
hope. History has shown us that when
certain avenues of finance are closed, new ones inevitably open up. This is the
case with Crowdfunding in it's various incarnations. It has become an alternative funding source
for many eager entrepreneurs to get their project on solid financial ground.
The Alternative Funding
Many new, alternative ways of raising capital have emerged that are able to
help people looking for financial backing find the people who have the money to
do so. Some of the more common types of
alternative financing are Microfinance, Peer-to-Peer Lending, Crowdfunding and
Microfinance was brought
about by Nobel Prize winner and founder of the Grameen Bank, Mohammed
Yunus. Microfinancing is a type of banking service that is provided to unemployed or
low-income individuals or groups who would otherwise have no other means of
gaining financial services. Many of these microfinancing companies have focused
their resources in third world countries.
This finance model
involves getting people to fund your project through websites designed to
attract philanthropic investors. This
concept has worked particularly well for musicians and for the theater groups
looking to get their plays off the ground.
If you have a musical or theatrical project and need funding to make it
a reality then crowdfunding allows you to reach the masses and people who
support your project can donate to your cause.
Peer to Peer lending occurs directly between individuals or "peers" without the
intermediation of a traditional financial institution. Peer-to-Peer lending
(also known as person-to-person lending) is for the most part a for-profit
activity. This distinguishes it from
charities, philanthropy and crowdfunding which also create connections between
donors and recipients of donations but are nonprofit movements. There are some established Peer-to-Peer
websites available such as Prosper and Lending Club. However this option may not be available to
everyone since you still need to meet certain minimum finance and credit
requirements. However it is still not as difficult as getting a loan from a
traditional bank. The standards are much
easier to meet.