Crowdfunding VS Alternative Creative Financing – What suits your business model best?
Crowdfunding involves raising small amounts of money from friends, family, the general crowd or colleagues. It provides an opportunity for startups and small businesses to raise funds by providing incentives to contributors. The growth of crowd funding platforms such as Indiegogo and Kickstarter is proof of the popularity of this form of financing.
If you are running a small business you need to consider whether crowd funding is the best option for you. There are a few problems with crowdfunding:
- One problem is that it is based on an all or nothing approach; you have to attain your goal to get the funding.
- Another problem with this form of financing is that it works mainly for relatively small amounts. Many platforms only allow projects that need $100,000 or less.
- Additionally, it doesn’t work very well for complex projects; your idea has to be simple enough to be understood by your funders.
Most platforms started by providing a way for entrepreneurs to raise money in exchange for a reward. The reward could be based on the amount of money contributed and could be as little as $1 to as high as $5,000. The crowdfunding platform will charge a fee for facilitating the transaction but will not require equity in your business.
More non-profits are looking at the prospects of raising money through crowdfunding. There are funding platforms that are dedicated to social entrepreneurship and non-profit organizations. Some platforms may also allow only certain types of projects.
You can collect donations through various funding platforms to support your cause. Charities can also raise awareness about their projects. Some funding platforms will charge a fee. This fee varies from one website to website. Charities also need to be aware that people tend to associate the charity organization with the platform. This should be clarified so that the distinction between the two can be established.
What Are The Other Options?
One problem with crowdfunding is that entrepreneurs cannot be certain when they are going to meet their goals. Most business owners need financing within a certain period of time to fund projects, manage their working capital, or deliver goods and services to customers. Crowdfunding can tie up the funds for an indefinite period of time unless you can quickly meet the set target.
Alternative Funding Methods
Although crowdfunding sources and methods are a strategic way of financing your business endevours on $100K or less. The draw back that your funds can be held indefinitely until the target is met, means that there are occasions where some project will never be funded.
- Would you risk your business goals on a “chance” of funding? Or
- Would you look at alternative methods of financing that does not eat into your shares of the business & your time?
Below are 2 alternative funding methods that does not require an investor or financing institution to eat into your business interest.
Purchase Order Financing
One option that entrepreneurs have is PO financing. Purchase order funding allows businesses to continue supplying goods without interruption. You can get up to 100% financing for your business. Unlike crowd funding, the funds can be received in a matter of days or even hours. Entrepreneurs do not have to worry about business processes being interrupted by unexpected delays.
In accounts receivable financing the finance company takes your invoices as collateral and advances funds to your business. You can get up to 80% financing upfront and the rest of the money – minus fees – after your client pays the invoice in full. This form of financing allows businesses without a good credit rating to get funds against their receivables without the delays and long processes associated with other forms of funding. The business owner is also relieved of the duties of chasing after slow-moving invoices.