On crowdfunding and peer-to-peer lending.
Q: What is crowdfunding?
A: Crowdfunding is a way to fund a project or new idea by a group of individuals contributing a small portion of the overall financial goal. Unlike a loan or investment, the individuals participating in a crowdfunding project do not necessarily receive a return on their investment; crowdfunding is more of a merit-based reward system in which the owners give away something, like a sample of their product, to the people who funded them. Two examples of this are Kickstarter and Indiegogo.
Crowdfunding is a great option for startups with a working, viable product. If your business isn’t yet a year old and has not produced much revenue, this might be a good funding option for you.
Q: What is peer-to-peer lending?
A: Rather than going through a bank or traditional financial institution for a loan, small business owners can have money lent to them by their peers, typically through an online marketplace.
Peer-to-peer lenders differ across the board. Most offer a fully anonymized experience where neither party knows anything about the other; lenders are given insight into the financials and riskiness of lending to the borrower, but know nothing about their business. Other lenders offer a more social experience that combines elements of crowdfunding. These marketplaces allow the borrowers to pitch their businesses and explain why they need the funds, while also providing insight into their financials and creditworthiness.
Peer-to-peer lending is a great option for small businesses that have been in business for a year or longer and are producing revenue.
Mark L. Rockefeller is an entrepreneur, attorney and veteran. He is the co-founder and CEO of StreetShares, an online marketplace where investors compete to provide shares of commercial loans to small businesses.
Follow Rockefeller on Twitter @markrockefeller or StreetShares @StreetShares
Have a question? Send it to him at questions@streetshares.com.
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