Small Business Loan Vs. Crowdfunding: Which is better?
Crowdfunding is the latest rage, and while it might seem like a good idea, many people find it doesn’t quite pan out. Crowdfunding has even crossed over in the business world as an alternative form of financing of which many tout its benefits. Is crowdfunding a better financing option than a small business loan? Maybe, but when you compare you two, you might find yourself leaning toward to the more traditional financing option. Here’s why.
While filling out an application and providing copies of the requested supporting documentation can take a ton of time when you apply for a small business, you must take even more time to create and market your crowdfunding campaign. This includes coming up with a hook that will catch the eye of donors willing to part with their money to support your business, which is harder than it might seem.
Once you’re campaign is up and running, your job isn’t done. You must continue to market your campaign on social media and offline to keep the buzz going and the donations coming in. If you’re pressed for time, and most small business owners are, you might do better to apply for a loan because once you’ve submitted the paperwork, you’re done.
Once you’re approved for a small business loan, you’ll receive your funding within the allotted time. With crowdfunding, there is no guarantee your campaign will meets its goals, which can be brutal to a smaller entity in need of a certain amount of cash. Just take a moment to look at existing campaigns. How many are actually near their goals? You’ll be surprised to see the answer to that question.
You may not have the time to wait for your crowdfunding campaign or its payout, either. In many cases, the campaign must run for months before it comes close to its goal, if it comes close at all. If time is not a luxury you have, this might not be an option for you, unless you know people are going to contribute right away so you meet your goal quickly. Once approved, a traditional loan is paid out quickly.
This being said, there are advantages to crowdfunding, too, provided your campaign is successful. The primary advantage is you never have to pay the money back. Crowdfunding is a fundraiser, which means people donate to your business with zero strings attached. If you think you can run a successful campaign to raise the money you need, go for it. Otherwise, a small business loan may be your best bet.