Debt crowdfunding is an online method for lending small business owners money. Unlike traditional business loans, debt fundraising provides a predictable, regular income stream without limiting the owner’s upside potential. The major advantage of this type of crowdfunding is that businesses can retain their equity and generate more money without risking capital.
The idea behind debt fundraising for small businesses is to help small businesses raise the money they need, but some investors are wary of the process. Equity investors are interested in getting a percentage of a business’s revenue, which is not ideal for seasonal and cyclical enterprises. Because of this, debt crowdfunding for small businesses offers a unique opportunity to obtain financing. It also provides local, entrepreneurial-minded investors a chance to get involved and support small businesses in their community.
It is an excellent way to raise capital for small businesses
The process of debt crowdfunding for small businesses is quick and convenient. The process works well for businesses with cash flow and customers. In addition to providing immediate cash, debt fundraising also allows small businesses to engage their customers as investors, thus turning them into sales and marketing agents. This is a great solution for several small businesses.
A popular option for financing small businesses.
This type of financing is often a great alternative to equity crowdfunding, in which investors invest in an equity stake in an early-stage company. Unlike equity crowdfunding, a debt crowdfunding platform provides investors with a fixed return on their investment. These businesses are matched with institutional investors to receive the funds to finance their operations. Some platforms even allow businesses to get the funds through a crowdfunding campaign.
A few online marketplaces offer small business debt fundraising
One of the largest is Funding Circle, which gives loans for up to $500,000 for single loans. This company has raised more than $17.5 billion and has been funding a wide range of small businesses. The interest rate for these loans starts at 4.99% and can be extended for five years. To qualify for a Funding Circle loan, you must have good credit, recent growth, and a minimum annual revenue of $120,000. Applying on Funding Circle takes just 10 minutes, and the approval process can take up to a week.
Allows small businesses to leverage the debt owed by customers
The lenders don’t need to control your business; they will make sure that you pay back your loan. As a result, it is a great option for many companies. The downside is that you may have a smaller unpaid invoice portfolio, but you can still benefit from debt crowdfunding for small businesses.
Allows to diversify your portfolio
You can use debt crowdfunding to buy shares in a business, or you can raise money through equity-based offerings. Using the equity-based method allows you to raise more funds than with traditional lending.
Crowdfunding provides a convenient way for small businesses to raise capital from individual investors. There is a community of investors who want to see the success of a business. Borrowing from these investors is much easier than a traditional bank loan.
As the name suggests, debt crowdfunding is a form of crowdfunding different from equity crowdfunding, which is best for significant projects of established companies. This type of crowdfunding allows small businesses to receive a loan at any stage of their business journey without giving up ownership of the business. Additionally, unlike equity crowdfunding, debt crowdfunding for small businesses does not require you to give up any profit or ownership in the business.