Weighing Crowdfunding VS. Small- Business Loans for Financial Growth

By: Daniel Ling, CrowdFundBeat guest Editor & offerboard.com

Studies have found that successful crowdfunded projects or businesses depend on two main drivers: the marketability of the product and a large number of backers. Having a sexy, marketable project or product allows for greater ease with outreach. Furthermore, it’s critical to have a large support base of friends, family, community members, and online followers. These people function not only as funders but also promoters. These are just a few essential characteristics of successful small businesses, among many other critical business development components. Equally as important as having a supportive network is the choice to fund a small business. Small business loans were the only option previous to the advent of the sharing economy, specifically crowdfunding.

Untitled1-300x200

Small business loans can come in many forms and from many different sources. In addition to several new programs being offered by traditional sources, there are several relatively new loan sources available, like peer-to-peer lending sites such as Kiva and Lending Club and crowdfunding websites.

For example, if a small business qualifies for a bank loan, that’s where it should seek funding. Banks simply have the cheapest money to loan because of their access to checking and savings deposits. This also gives them a great incentive to court business owners, who make a lot of those deposits. Specifically, community banks and credit unions are the best option for small business owners.

In very specific scenarios, personal savings can be a good option for small business owners needing access to cash. If savings are sitting around and not earning as much interest as they could from being loaned to one’s own business, it can be a good investment.

In addition to the attractiveness of the product and the level of support of the project, the cornerstone of crowdfunding success is high-risk tolerance. The structure of capital raising platforms like Kickstarter is extremely risky, as crowdfunding is an all-or-nothing endeavor. If a campaign fails to reach its fundraising target, no matter how close it is, company receives none of the crowdfunded capital.

Taking on loans may be a more attractive alternative as a small business due to its relative security, but they require more credibility from the company’s perspective. However, this type of loan is hard to come by, since small-business loans are only available from other lenders when the franchising has a strong track record. For small businesses, a strong track record is rare and hard to convince. With a business with low overhead costs, such as a consultancy, all one needs to start the business from home is a computer and an Internet connection. From there, business credit cards can provide all the capital one may need.

One small-town business in Langley, Washington serves as a case study for successful crowdfunding campaigns. Owner Graham Gori first recognized a need in the market for his authentic Italian restaurant. At a holiday bazaar of a farmers market, he prepared blue corn pozole and vegan pipian rojo, putting up a stand as a makeshift street vendor. People lined up for his unique ethnic food. Evidently, an apparent opening in the market is necessary for a successful crowdfunding campaign.

Furthermore, Gori exercised marketing practices that worked in tandem with the small-scale nature of his business. For one, he developed a promotional video that he shared with friends and family. While Gori took advantage of a cutting-edge funding platform and all the social-media tools at his disposal, he also used one of the world’s oldest marketing techniques: He put on a sandwich board and walked in a parade and at a school festival, passing out fliers. These old-school marketing techniques are particularly useful in smaller communities, where social media outreach might be too progressive.

More specifically, companies in business-to-business industries with invoices and low revenue may want to consider selling accounts receivable, a small-business financing technique known as “factoring”.

Despite of all the advantages and disadvantages of various financing methods, it’s important to explore every available option as one looks for small-business funding. Although the crowdfunding route isn’t easy, one may find success and blow past intended fundraising goals. Although Graham Gori’s campaign for his ethnic restaurant defied the odds, it was a nail biter. If Gori’s company is any indication, crowdfunding can serve as an exciting and successful way to fund a small business and generate buzz even before it opens its doors.

Tags: , , , , , ,

HEADLINE NEWS

Baltimore SunHarford still opposes crowdfunding sites for school donationsBaltimore SunRaising money through online crowdfunding sites is an ideal way for teachers to find the funds to purchase classroom materials and should be restored, the head of the Harford County teachers' u [...]

U.S. News & World ReportNo Cash for Hate, Say Mainstream Crowdfunding FirmsU.S. News & World ReportThe block on mainstream crowdfunding is just the latest blow to far-right activists operating online. In the last 24 hours, neo-Nazi website the Daily Stormer had its domain regi [...]

LITTLE GUIDANCE FROM IRS ON TAXING CROWDFUNDING CONTRIBUTIONSBloomberg BNAWhether it's a musician raising money to produce an album, an inventor with a great idea, or a family in distress that needs help, crowdfunding through platforms such as Indiegogo and Kickstarter has become [...]

Crowdfunding: Funding ideas the right wayReuters (press release) (registration)The term “crowdfunding”, or “crowdsourcing”, refers to an open call made to the world via the Internet to solicit funds from interested parties to finance a business or social project. The funds received ma [...]

Crain's Cleveland Business'Smaller' gifts can go long way for Clinic's crowdfunding platformCrain's Cleveland BusinessFor an institution accustomed to securing multimillion-dollar donations, Cleveland Clinic's latest fundraising effort has some relatively [...]

What do you think of crowdfunding campaigns?Japan TodayI think that if there is a responsibility and guarantee of sorts that the crowdfunding site will actually act with the users to go after companies which waste money or run off with it, then it would be a great thing for the future [...]

ForbesWhat Works In Equity Crowdfunding -- Insights From ResearchForbesAs we have recently celebrated the fourth anniversary of the signing of the JOBS Act into law, it is a good time to take stock of the effect that the legislature had on equity crowdfunding in the United States. It [...]

VentureBeatAmid Silicon Valley crackdown on alt-right, Gab social network ...VentureBeatAs high-tech firms have begun taking steps to weed out some of the most offensive right-wing hate groups, alternative social network Gab has seen a surge in ...Gab is becoming a haven for hate spee [...]

FortuneIndiegogo's Difficult Path to Offering Equity CrowdfundingFortuneIndiegogo founder Slava Rubin discusses how Indiegogo's equity crowdfunding service has been performing since its launch in 2016. Photograph by Indiegogo. E-mail; Tweet; Facebook; Linkedin. Share icons. [...]

The HinduKoodiyattam centre goes for crowdfundingThe HinduThe goal is to raise the sum through the crowdfunding platform BitGiving (https://www.bitgiving.com /nepathya) to train a new generation of artistes in what constitutes the only surviving form of ancient Sanskrit theatre in the [...]

CFB Finance

Marketwired

  • Crowdfunding
  • Crowdfund
  • Peer to Peer Lending
  • FinTech
  • Reg A+
  • Reg CF
  • Crowdfunding USA

Press Release

Live Crowdfunding .tv

What's Next Step in Regulation A+ JOBS ACTS Title IIII :L Interview : Steve Cinelli with Brian Korn Securities and Crowdfunding/Peer-to-Peer Lending Lawyer, Watch more video library | Conference | Interview | Campaign Showcase | Research | Education |