Startups are the hottest form of small business going, yet many big capital firms are reticent to provide investment. According to Entrepreneur, just 0.5% of all startups count venture capital as their primary source of funding, compared to 57% of businesses using their own assets and 38% using family and friends to get the business off the ground.
The nature of the modern internet and how businesses operate has given more flexibility to this situation, primarily through peer to peer lending and crowd sourcing. These methods of capital delivery are only set to become more relevant through 2020, and startups should certainly be looking at them as an option for their growth.
P2Ps Increasing Relevance
There is, of course, nothing new about P2P lending, with several companies operating in this fashion since the mid-noughties. As outlined by financial industry advisers Crediful (https://www.crediful.com/peer-to-peer-lending/), P2P lending helps small businesses to find funding from unusual sources.
This improves flexibility, enhances the chance of receiving superior rates, and gives a more personal relationship between the lender and the buyer. Furthermore, the scope and nature of P2P offers are only likely to become more diverse as several major nations revamp their P2P regulation, according to Tech In Asia.
In efforts to regulate a sprawling industry, China, the USA
and other major nations are regulating and reforming how their P2P lending
networks operate. While initially causing a downturn in the number of P2P
lenders available, this has been touted as a broad positive. In the future,
it’s predicted that there will be a far greater range of lenders available that
are also conforming to strict regulation – making for a safe funding option.
P2P to Crowdfunding
P2P to crowdfunding are operated in much the same matter,
but there are important distinctions to be made. According to Fleximize, the
primary difference is that crowdfunding often has more financial risk for
backers. From the business perspective, the differences are negligible and
still remain an alternative to traditional financial backing.
Crowdfunding arguably benefits from a more enthusiastic marketing strategy. Whereas P2P can be considered more bland, with a focus on business plans and convincing backers, crowdfunding is all about getting those small and voluminous donations through.
According to Forbes, this is the primary challenge in a successful crowdfunding campaign; creating a buzz for your company that is both easily communicated and easy to become involved in for consumers. Crowdfunding will often be slower than P2P, and work needs to be completed before a campaign can be launched. Bear this in mind when searching for funding.
Flexibility is the Key
What P2P and crowdfunding hold in common is that they
benefit from the interconnected world. The internet has allowed businesses and
individuals to connect and get involved in a manner never seen in the past, and
allowed for the influx of investment and donations without the rigmarole of
classic funding and investment schemes. In this situation, selling your
business and its vision is the easiest way to get the message across and find
valuable new sources of funding.
Ultimately, both P2P and crowdfunding will provide you with
alternative funding to the classic banking system. Both are with their risks,
with P2P quicker on the uptake but more stringent, and crowdfunding requiring
patience and dedicated marketing. However, making use of both can bring in
income that’s crucial to growing your business, and can help to train you in
business skills along the way; budgeting, marketing, hard work and dedication.
Picking either is a great way to help your startup get up and running.