You’ve tapped out your savings account, taken out a home equity loan, borrowed against your life insurance policy and you STILL need more money for your business. If you’ve decided against traditional funding (like a bank loan), you might be thinking of asking friends and family for help, or using some type of crowdfunding site. Here’s a bit of info to consider before taking that next step.
Friends and Family Funding
Financing your business through friends and family can be an ideal situation where both parties win, but it can also become a problem if it is not planned properly. Before asking for financial aid, it is a good idea to investigate the implications of using your personal network to finance your business.
Explore article 6 Tips for borrowing funds from family or friends to start your business where they offer advice on using this financing option and the implications. In it you will find some of the best practices before approaching your personal network.
Crowdfunding is one of the options available to raise funds through an online platform where you ask a large number of people to contribute to the financing of a specific project. There are four types of crowdfunding:
1. A Rewards Base: Providers donate to a project or cause they believe in. There may be a reward for lending, but in many cases it is a donation with zero return on investment.
2. A Donation Base: This option is usual for charitable causes where donors give to a cause without waiting for a return on the investment (donation) they made.
3. Equity: Provides a return on investment to the lender giving a portion of equity in the company. In other words, he becomes the owner of the portion they agreed upon for the investment he made. Previously, only accredited investors could use this type of crowdfunding to invest in a business, but, since 2016, investors without accreditation have the opportunity to invest in startups and other types of businesses.
4. Loans Between Individuals (P2P): It involves sharing your idea with other people through online platforms with the intention of getting interested and investing in your business. Usually, the loans are provided by different investors and the entrepreneurs who borrowed obtain the funds quickly and with lower interest levels than they would have with traditional financing programs.
There are hundreds of crowdfunding pages to choose from. Therefore, if you are looking to start a crowdfunding campaign to finance your business it is important to investigate before you can find a page that matches your needs.
Here we include a Colmena66 blog, written by Guifre Tort, founder of Antrocket.com, a “Crowdfunding” web platform: What is Crowdfunding and what are the different types of platforms you can take advantage of?