These days if you want to fund your startup you may want to avoid getting into debt, and so you have turned to crowdfunding. There are many advantages to crowdfunding especially the fact you can avoid the traditional financial institutions.
On the other hand, there are still many disadvantages to trying to go down the crowdfunding route. This guide is going to go into the main issues regarding loans and crowdfunding so you can make an informed decision.
Breaking the Glass Ceiling
There is a glass ceiling when trying to secure a traditional loan. Banks are notoriously conservative in their approach, so you can only borrow so much from them. Crowdfunding has no glass ceiling. One company names JustPark managed to raise 3.7 million in the UK from investors, for example. They could never hope to receive that from a bank.
If you have a big idea that requires a considerable amount of money to fund, you can forget about getting what you need through a traditional loan.
The Way You Run
Crowdfunding has never been perfect for every type of business. Not every business is going to have the public appeal to attract crowdfunding investments. For example, an accountancy firm or an insurance firm is never going to produce anything new or interesting. You need to produce something new.
To make a crowdfunding campaign work you have to set the stage through an interactive video. It has to be something that people have never seen before. That's what will help you to gain the traction you need to appeal to a wider audience.
The best crowdfunding campaigns tend to innovate their industries. If you are starting any old business, you are going to have a hard time generating any interest.
Location, Location, Location
You can actually get funding through crowdfunding no matter where you happen to be in the world. And that's a good thing for the average online business. What it means for the average local business is that they are not going to have the success on crowdfunding that they need.
Why is it the case?
Most successful campaigns are funded by investors from all over the world. You cannot expect to succeed if you are not catering to the whole world. Businesses have to be international if they are going to get what they want.
You Have to Give Back
What a lot of people forget about crowdfunding is that you have to give back to the people supporting you in the first place. Crowdfunding campaigns offer perks to investors who give them money. The more they give the bigger the perks.
Perks may include things like first refusal on new products, touring the company offices, and behind the scenes news. These can take away from the operations of your company. Following through on your promises can detract from your core business activities.
With a loan, the only obligation you have is to make regular repayments. And that can be beneficial for already stressed entrepreneurs.
The Time It Takes to Secure Funding
Timing is one area where you don't have much of a choice. Banks tend to take a long time to process loan applications. They wish to receive a range of documentation, and then they will take weeks to give you an answer. In some cases, you may even be asked to speak with the bank in-person to discuss your business plans.
Crowdfunding campaigns may only last for 30-90 days, but the work that goes into making that campaign a reality can make it take as long as the average bank.
When it comes to timing, there's no way to split the two options. If anything, setting up a crowdfunding campaign is much harder.
What's the Best Option?
You will notice that there are pros and cons for both these options. The key is to consider your business on an individual basis. Think about the public appeal of your business, particularly on a global basis.
There's truly nothing that separates the two options. They can both either go really well or really badly. A carefully considered decision will ensure that you have the best chance of securing funding for your company.