There are a lot of options for financing your small business. You can opt for the traditional method of a loan via a bank. Alternatively, you could take advantage of crowdfunding.
By definition, crowdfunding is when a lot of people give a little bit of money to a business looking to start up or expand. There are four common types of crowdfunding, they are:
- Donation-based is a method of crowdfunding where there is no financial reward for investors. This type of funding is often used for charitable purposes, fundraising, or disaster relief.
- Reward-based is commonly used by start-ups, particularly in creative fields that normally don’t qualify for small business loans. As the name implies, reward-based crowdfunding provides donors with perks such as limited edition merchandise, pre-orders, or special services.
- Sometimes referred to as Crowd Lending, Debt-based crowdfunding is very popular with small businesses and startups. Debt-based crowdfunding has lower interest rates than offered by banks and tends to be more flexible.
Honeycomb Credit, a Cleveland based company, has a lot of experience with funding small business. You can learn more about them at www.honeycombcredit.com/grow.
- With Equity-based crowdfunding, investors receive ownership shares. Investors don’t participate in this kind of funding to get a discount upon release of a product, they do so in hopes of making a profit. Equity-based crowdfunding is akin to selling securities.
Other Types of Small Business Financing – Quick but at a Cost
For small businesses who need money fast, there are several companies that offer a quick infusion of cash. The immediacy comes at price in the form of high interest rates.
These lenders include Kabbage, Fundbox, and OnDeck Capital. There are minimum qualifications for these loans, such as being in business for at least one year, proof of consistent receivables, and a minimum credit score. We don’t recommend these options because the cost of the funds are so high. If you are using one of these lenders, consider working with a local bank or use crowdfunding to reduce costs.
We can help you sort out your options and improve profitability.
Email us at kathy@budgetease.biz to learn more.
