Finding funding is a normal part of starting or
expanding a business, and back in the day, it was handled primarily through
banks. But small business lending from banks came to a screeching halt with the
financial crash of 2008. And while there's a bit of a bounce-bank happening,
it's nothing compared to the explosive growth of alternative financing
opportunities.
Today,
everyone seems to have their fingers all over financing businesses. With
lending start-ups completing IPOs and headlines promising funding in 24 hours,
the message is that help is just a click away. It can be confusing, and whether
or not you're in the market for funding, it's important to be aware of what's
happening in the marketplace.
Funding,
lending and investing on crowd-based platforms is big news, but industry
definitions are inconsistent. Here's one very basic way to break down the
models in play:
Crowd-funded
financing models include:
- Rewards-Based/Donation-Based
Crowdfunding: Money is pledged to start-up ideas or causes, and awards may
be given, but no ownership in the company is received.
- Investment or
Equity Crowdfunding: Capital is provided in exchange for a share of a
privately-held business or start-up.
- Peer-to-Peer
Lending: Connects borrowers and investors online through a marketplace
without a banking intermediary.
Each
of these models has its own set of benefits and cautions, but there's no doubt
that collectively they're changing the funding landscape for small businesses.
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