What About Crowd Funding

Continuation from Friday…..(How To Borrow Money)

• SBA Loans: Too many requirements and an application process that might take a while to complete.  An unfortunate development since you need to start your business NOW and not 2 years from now.  However, it is a good option for many brick and mortar businesses and it is recommended that you look into this if no other options are available at the time.

• Bank Loans: Forget it if you have a startup.  Banks typically require a 3 year operating track record and audited financial statements before they would even consider lending you penny. It is an option for more established businesses seeking growth capital and not for entrepreneurs like you.

• Revenue Financing: Finally, if your business is already generating revenue, yet it is doing so on Net 30-60-90 or more payment terms it might make sense to finance your operations and cash flow through accounts receivable financing. Also known as factoring.  In essence, financial institutions fund your accounts receivables in exchange for interest. And while the rates are not very competitive, it is an option if everything else fails.

Crowd Funding

As described earlier in “Build a Crowdfunding Campaign”, crowd funding is the most recent phenomena that has proven to be a highly successful avenue for various entrepreneurs to raise money.

If you have skipped the earlier section, it works in the following fashion. Let’s assume that you have a great idea for a business, product or even a movie. What you would do is post the details of your project on sites like Kickstarter.com or Indiegogo.com in order to ask people for contributions or donations towards your cause. If people do like what you are trying to do they might contribute somewhere between $5 and $1,000. And if you get enough people to do that, you are talking about real money.

For instance, let’s for a second imagine that 10,000 people contributed an average of $25 towards your business idea. Well, that’s $250,000 you didn’t have before that can now go towards your business. And for most, that should be more than enough to get going.  At the same time, the donations are not really free. Most projects offer either a completed product or some sort of a thing or a perk in return for the monetary contribution.  And while it’s becoming increasingly difficult to post projects due to their oversupply, it is definitely an avenue worth pursuing.

Equity Crowd Funding:  Based on the Jobs Act of 2012.

Only a brief mention here as this particular point will be discussed in greater detail in the Angel Investor section below.  Plus, the water is still a little bit murky on this one as most of the laws governing this type of an equity investment are still being written by the SEC.  In simple terms, this law allows entrepreneurs to market and directly raise capital from High Net Worth individuals. As opposed to the environment prior this law, where entrepreneurs could NOT directly market or solicit investment into their enterprises.

To Be Continued Tomorrow……(Why Am I Seeing This On A Financial Website?)

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