There are several means of funding a new business. The two major methods are crowd funding and business funding. From the angle of a business owner, both methods are comparably good. However in the view of an investor, business funding is more profitable than crowd funding.
As an investor, you can fund a third party business by either offering a long term loan or by investing directly in the business to become a shareholder. Here are the major differences between both of the funding methods.
Originator of Financing
Banks, private lenders and other financial institutions are usually the originators of financing for business loans. After checking out the business plans and confirming the viability, investors can take advantage and determine how many shares they want to buy or offer a loan and determine how much interest they want on their loan.
The major advantage in business funding especially at an early stage is that you can buy as many shares as you want and become the chairman of the board. However, big corporations will not allow you buy enough shares to be able to wield substantial influence. Most importantly, if you invest instead of offering loan, you will enjoy your returns as long as the company operates.
For crowd funding, the originators are from the crowd funding platforms. However, the funds come from different individuals and groups in the form of pledges. The pledges are made by individuals and groups who believe in the business or project. For instance, if the project is about publishing a book, the people who believe in the book will pledge to pay in return for a certain number of the books. There is not much gain for investors here. You only get the physical product or service that business owner had promised. This is why this method is more suitable for Non-Profit Organizations.
Application and approval process
Before you fund any business, you should review the business owner’s tax returns, financial statements, and credit score to be sure that he is not in debt, doesn’t evade tax and that he pays loans back. After that, the business plan is also scrutinized because you have to be sure of the feasibility and viability of the business. As an investor, this will give you more confidence to fund the business.
However, crowd funding does not work the same way. The business owner only needs to follow the campaign requirements and guidelines, which vary across different platforms. The major drawback here for investors is that they don’t get to scrutinize the business owner and the business.
Security of funds
Private money lenders can ask for collateral that covers the loan they want to take so that if the business fails, they can retrieve their money. There is no collateral involve in crowd funding. So, if the project fails, your money is gone for good.
For business funding, you will get back your loan and interest in agreed installments until it is fully repaid or the agreed returns on your investments. It could be paid in dividends. You would be able to get your promised returns until the end of the contracted period unless the companies cease to exist.
On the other hand, there is no real return for the money you pledged into crowd funding. You can only get what business owner promised you. It could be in some form of his products or free services.
In conclusion, after having gone through the differences between both funding methods, it should now be clear that investors have much more to gain in business funding than crowd funding.
If you are interested in business funding as an option or to pursue a new stream of income, Vantisco Global offers one-stop funding solutions that work for your needs.
To find out more about these funding opportunities that Vantisco Global offers, get in touch with us through the links below: