A Guide To Crowdfunded Business Loans

David Allan

Written by David Allan on March 5, 2019

Updated June 10, 2019

crowdfunding

If you have a newly formed business, then you may find that generating cash is a difficult feat – getting accepted for a business loan is difficult at the best of times but add being new to the business world to the mix, and you have an even bigger difficulty. Where this is the case, there are a few unconventional options available – one of which is a Crowdfunded Business Loan.

What is crowdfunding?

While normally associated with charity and projects related to the arts, where people donate to a fund because they believe in a particular course, crowdfunding can also be used as a means of raising money for businesses – sourcing small amounts of money from a large number of individuals – as opposed to borrowing the full amount from a particular lender.

Crowdfunding is considered an up and coming way of raising money; this method can be used in a large number of ways to effectively acquire the money you need to make business advancements.

There are many different crowdfunding platforms available. It is well worth browsing several different crowdfunding sites to see which ones you like and which could be a good fit for your business.

How can I use crowdfunding to raise money for my business?

There are actually a number of different ways of using crowdfunding to raise money for your business needs.

Development

If you are a business that sells a range of products, you may find that the initial development of the product can be quite costly. With new products comes a risk of it not achieving what you had anticipated, so ensuring that there is enough interest in the product to warrant its launch is a good start.

One way of doing this from a crowdfunding perspective is by selling pre-orders of this brand new product – the incentive being that the customer is able to assure themselves that they will receive one of these sought-after new products, getting their hands on it before other customers.

Having such a feature in place can benefit both customer and business – customers for the aforementioned reasons and the business because of the fact that they can secure the money they need to produce the product prior to it actually going to production – cutting out the need to take out a traditional business loan to fund their expansion.

Such an option is beneficial as it allows you to see how much interest your products has on the market because it actually goes to development, rather than after the whole process has been signed, sealed, delivered – and paid for. This puts you at a financial advantage as you are only forced to invest the money you know you will get back in return – lowering the risk of bringing out a product that will crash and burn.

Business loan

While a traditional loan could be a viable option for some; if you’re a new business, then you might find that a less traditional method such as a crowdfunded loan is better suited to your needs.

Businesses fail because they get stuck paying back a loan that they couldn’t afford to pay in the first place – crowdfunding may well be the answer to this difficulty. Essentially, a crowdfunded loan is a way of funding your business through a series of small pledges from individuals and investors.

In return, the promise of products themselves or else equity in your business is offered. To draw in pledges you need to make sure you have a highly effective marketing plan and excellent projections. You’ll also have to keep your investors in mind and ensure that you follow up frequently.

With any crowdfunding platform having a robust business plan that potential investors can see is a necessity. Before appealing for investment, make sure your business plan is up to scratch and watertight in case investors start to pick holes in your plan.

I’d like to take out a crowdfunded loan… what do I need to do?

To qualify for a crowdfunded business loan, you need to be both profitable and in a good credit position and have been trading for at least two years. You’ll have to provide your lender(s) with information about your business revenue, cash flow and other financial accounts as well as recent bank statements and any credit agreements you have in place.

Equity crowdfunding means that you need to provide your investors with equity in your company – meaning that if you want the business to remain yours, a more traditional loan may be more suited to you.

If you’re looking for investors in your company and need money to get things off the mark, then a crowdfunded loan may well be preferable to a traditional loan. Only you will be aware of what aligns better with your business needs – of course; you are able to speak with a financial advisor if you have questions about the best route for you.

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