Crowdfunding Alternatives: Why you don't need to follow the crowd

There are two types of crowdfunding that can let you raise funds for your business.

Investment Crowdfunding

Investment Crowdfunding – also known as Equity Crowdfunding – involves seeking small investments from a large number of people, who will receive a small number of shares in return. This is, in effect selling, shares in your business.

Loan-based Crowdfunding

Loan-based Crowdfunding is also known as Peer-to-Peer Lending and will require you to make regular repayments, much like a conventional loan.

They can both provide funding for startups, but they can also have some drawbacks, and it is important to understand the challenges:

• If you have no prior trading record, you may not be able to generate enough interest from investors, which can mean that you fail to meet your targets.
• If you have a revolutionary product or business idea, you may get the interest you need, but your idea may go into the public realm, running the risk that a competitor might use it.
• Raising sufficient funds depends on attracting hundreds of lenders. This means that raising the funds you need can take considerable time – or you may find that you cannot interest sufficient investors, leaving you with a funding shortfall.

If you are looking at Crowdfunding, it is essential that you are aware of these negatives, and that you consider the other ways of raising the funds you need.

What are the alternatives to Crowdfunding?

The traditional source of business funding is the bank. The main high street banks (RBS, HSBC, Lloyds, Barclays, Santander) may be facing some stiff challenges, but they are still an important factor in the lending market.

However, with regulatory red tape meaning that arranging any bank loan will take weeks to set up, many business borrowers seek alternative providers simply because of time pressures. Banks may also find it difficult to lend to start-ups, which lack accounts and other evidence of a proven business model.

Challenger banks

Changes to regulatory policy have made it easier for new banks to enter the market. These ‘challenger banks’ may have simpler application requirements with reduced paperwork, compared with traditional banks. They are usually able to move more quickly on making a decision – and may have more flexible lending rules than the established high street banks.

Digital-only banks and online lenders

Digital-only banks recognise that most of us are adopting digital channels for most of our banking needs, and are developing innovative technology including mobile apps to deliver a full range of online banking services.

While Digital banks offer a full banking service, online lenders specialise in online lending. Both have an innovative approach which can offer some important advantages when you are applying for funding, such as a very fast decision process. Some will allow you to support your application by uploading documents electronically, and by allowing access to online records. With smaller loans, some online lenders offer to put funds in your business bank account on the same day that you apply.

Specialised lenders

Specialised lenders can provide loans to businesses that might not meet the criteria of mainstream business lenders. If you are a startup with no business history, have an adverse credit record or work in a sector with unusual funding needs, a specialist lender may be able to provide a solution.

Merchant Cash Advances can provide cash advances based on future card sales. They can be ideal for retail businesses with a high number of low-value transactions. Repayments are made for you as a proportion of every card payment you take.

Invoice Financing can unlock the cash in your invoices, especially if you have large outstanding invoices and established clients. The lender effectively buys your unpaid invoices, giving you cash straight away. Once your customer pays, you get the remaining balance minus the lender’s fee.

Why you need our help

There are many alternatives to Crowdfunding that could provide the solution to your funding needs, but you may need help find the solution that is best for you.

Some lenders specialise in providing loans for particular business sectors. Others may concentrate on a particular business need, such as those of startups and newly launched businesses. Finding the right type of lending and the right provider is essential.

At Rangewell, we work across the entire lending market, and we know the lenders who can offer the most appropriate solutions for the various business needs, and for businesses working in various sectors. Our expertise can help you secure the funding you need at the most competitive costs.

Why you should call us now

Getting the loan you want can sometimes mean paying more than you need – unless you get expert support.

To find out more about the most appropriate type of funding for your small business, simply call us at Rangewell. Our experts can talk you through the options, help you find the lenders with the most competitive rates, and help you apply – and our service is free.