Crowdfunding or peer to peer lending? This is the question that rages among many entrepreneurs to expand their business. The crowdfunding is hogging the limelight because of the lethargy of lending from the banks and financial institutions. So, you have to choose the best option, which is the right method of financing that takes your business to greater heights. Entrepreneurs use the internet to raise the funds.
Crowdfunding and peer- to- peer lending are two novel methods to bring more money into your business. Both modes of finance are gaining importance over the past few years across the globe and now coming to India. This is a new experience for Indian businessmen and entrepreneurs looking to finance their startups.
Crowd Funding
Actually, people are confused about crowd funding and peer-to-peer lending. They are two different methods, but share common principles in raising money. In both forms a group of people pump in the money. You should be one among them to explain the group about the salient features of the business. You should know when to utilize the funds.
Crowdfunding is a great way to finance your starting of a new business. At a meeting with your friends or relatives explain the business proposal and based on your presentation some will assure that they are ready to invest in the venture. Then, after taking the amount you have to run the business successfully and reward those friends or relatives who gave money. You can reward the investors with a unique perk, a gift or something. This is known as reward based crowd funding. The crowd funding experiment started in the UK, a company called the Kickstarter has become the global leading reward-based crowdfund with asset of $ 1 billion of which $54 millions have come from the UK.
Since, then the reward-based crowd funding pattern has now changed and new concepts have come. The method of raising funds has risen rapidly. In one model instead of giving rewards to the investors, they were given a share or equity in the business.
Peer-to-Peer lending
Peer-to-peer lending is the easy way of funding business. The main difference between crowd funding and this method is, instead of rewarding the investors, here you repay the amount with the interest to them, similar to the bank’s lending norms. With this method, you can buy machinery, property, increase working capital and improve your stocks.
Which is best for your business?
If you have a good business plan to take off, crowd funding is the best option. But, if you are successfully running the business for three years and more, and looks to inject more funds into your business then peer-to-peer lending model is the right choice.
The Indian scenario
The Indian scenario is still fluid and the SEBI is framing the law to regulate the mode of crowd funding and peer-to-peer lending. Some companies are doing business on the model and have started their business. In the coming years the model will grow in India.
