Crowdfunding vs. Peer to Peer: Which is Best for Your Business
Crowdfunding and peer to peer lending are two different practices that are based around similar ideals. Each funding method will allow borrowers to collect funds from a number of people pooling their money together, rather than just one investor or financial institute. However, it’s more than likely that your business will benefit from choosing one over the other, so making the right decision is crucial.
Crowdfunding is generally a good option for start-ups that are based around creative ideas and gadgets. The people who decide to chip in can be provided with predetermined rewards, and you can really attract significant interest if your business idea catches on and gets shared. Even simpler products like paper bags can get a good return on your crowdfunding investment.
Unfortunately, not many businesses that choose the crowdfunding route are ever shared; consequently, funding is largely derived from friends and family members. If you do expect to attract interest from outside of your friendship circle, an effective marketing plan is a must, and these take time and resources to develop and implement.
Peer to peer lending, on the other hand, represents a great funding route for companies that are already set up and simply need an injection of capital. You won’t give away any equity in your business; instead, you’ll provide a credit score and personal information, then borrow just as you would from a bank.
Repayment rates are fixed, and you don’t need any collateral to take out a loan. Best of all, peer to peer lending tends to be much faster than crowdfunding, so you’ll end up with automatic payments being made directly into your account.
Peer to peer lending also tends to attract more professional investors since fewer companies that take this option end up defaulting.
Ultimately, crowdfunding is a great fundraising option that tends to steal the limelight from peer to peer thanks to its ability to focus on interesting new ideas and technologies. Despite this, peer to peer will usually work out to be the better option for businesses that are already up and running.
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