One of the more integral components for the success of any business is financial strength. However, the problem of economic clout is faced mainly by the small to modest business ventures. If you are a small business or a start-up, you might have to go for business loans or personal savings to manage the cash crunch.
According to EJ Dalius, crowdfunding is a better way to generate the capital if you are a small to a medium entrepreneurial venture. We can define crowdfunding as a method to raise funds with the help of people interested in doing business with you. Keep in mind that you might need to repay or present incentives to people who invest in your venture.
However, there are several types of crowdfunding, and also the following post discusses the main types in detail.
Eric J Dalius on debt crowdfunding
It is quite similar to a traditional business loan, and also you will have to repay the amount you raise after the tenure. However, one advantage of debt crowdfunding is that the lenders are not interested in your credit ratings but your industry. Your risk factors and also the business’s age will be under scrutiny, and also the criterion increases with the amount of the loan.
Here you pay a reward to your backers instead of the amount you get paid. Usually, the rewards range from thank-you cards to priority access for services and also products. The prize is for expressing your gratitude, and also this option is primarily for endeavors that resonate well with the masses. You can use reward-based crowdfunding for various purposes like book publishing, game development, or environmental causes. One of the primary reasons for the popularity of reward-based crowdfunding is the non-repayment of the loan.
Inequity crowdfunding, you have a stake in the amount you are raising from your investors. It is quite similar to angel investment or venture capital. A significant advantage of equity crowdfunding is how quickly you can get done with the marketing efforts. You can even adjust and decide on the terms for the disbursal of equity according to your benefit. However, this is quite a new concept, so there is less awareness, but with a bonus like “no-repayment,” it will soon catch on.
Here you neither have to repay nor reward your donors and also therefore all the money you gather can be directly used into the venture. But the donor crowdfunding has a bad rep as there are several instances of misuse for personal benefits.
As you can see, there are several options available to you, and also all you need to do is research the options and also have a clear idea about your choice. You need excellent marketing skills to attract investors and also sell your business idea. So, polish up your narrative and also concepts before going for a crowdfunding option. Utilize social media and also all forms of advertising avenues to have your voice heard.