As crowdfunding and peer-to-peer (P2P) lending gain momentum in the financial world, business owners are seeing them as attractive alternative solutions for financing. These two business models, products of the 2000s, are ground-breaking ways to raise capital for your business. However, the answer on which model is best for your company lies on your own business and its situation.
First of all, you need to differentiate between the two. Although they share the same principle of raising finances from a number of people via an online intermediary, they are not the same. Depending on the stage of your company, one will suit your business needs more.
Crowdfunding is for early-stage businesses
Crowdfunding tends to be a better option for early-stage businesses and start-ups. Pitch your idea or business to potential investors via a crowdfunding platform. If they are interested, they will contribute some money to the proposed business or product idea. It will be your task to decide how you want to reward the investors who helped you to make it happen.
Additionally, crowdfunding focuses on helping creative types and inventors get their ideas off the ground. Investors who took part in turning their ideas into reality usually expect something in return for their investment. That “something” can be a unique perk, a gift, or maybe even the business product that finally launched because of the crowdfunding campaign – this is considered reward-based crowdfunding.
You can also choose equity crowdfunding, where instead of giving a reward, you give investors equity. This is most effective for rapidly-growing start-ups.
P2P lending is perfect for cash injection
Perhaps you have a growing company with a lot of potential. However, you need more working capital to grow your business to the next level. If this is the case, then peer-to-peer lending is the better option. P2P lending does not require you to provide any gift or equity for investors. You only need to repay their investments along with interest on the money you borrow, much like a bank loan. This is the essential difference between a crowdfunding and P2P lending.
P2P lending is also a fast and accessible way to raise cash injection. It is funded by a number of individual investors. The flexibility of P2P lending is supported by online-based platforms that support the latest digital technology.
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