The same but different, this is how crowdfunding and crowdlending can be compared. One consists of financing through a group of people and the other with loans from various investors. Saying this doesn’t do justice to what both terms encompass. But which of these is better? Which of these could have more benefits? Today we’re going to analyze the subject.

Crowdfunding & crowdlending: How are they different?

These two financing methods, although similar, have clear differences. First you have crowdfunding or collective financing, which rests on financial contributions made by several people. In exchange for rewards or on based on donations. And the other is about resorting to several investors who’ll bestow loans that must be paid later. It’s important to define both terms individually:

Crowdfunding of rewards

Reward-based crowdfunding is the most traditional method of financing. It’s all about taking an idea, converting it into a campaign and publishing it on a platform. And then through marketing, promotion and some advertising, create a community of people who’ll make contributions. The objective is to finance your ideas through multiple regular people who are interested in your project, who do it in exchange for rewards.

Any type of business, idea or project has a place in reward-based crowdfunding. Therefore, it allows the financing of high risk campaigns but this in turn represents a disadvantage. If you manage to raise the budget or more than that, it can be very helpful. The trick is to be responsible in the delivery of perks and in managing the money collected.

crowdfunding success rate
Traditional crowdfunding has a high probability of risk. Since most campaigns aren’t usually successful. However, this risk can be reduced and the probability of success can be increased.

Crowdlending

Crowdlending is about obtaining funds through great people who lend money. And like crowdfunding, this is done through multiple investments. But contrary to this, you must pay interest in exchange for money. There are specialized platforms for businesses and startups aimed at crowdlending. Which work with different interest rates and their own standards.

As expected, crowdlending allows you to receive much higher contributions. Where crowdfunding accepts minimum contributions of $5 or $10, crowdlending allows contributions of $1,000 and up to $10,000. It could be said that this method of financing makes it possible to achieve a budget more quickly. This is relative though, it depends on the investors that finance the project and the amount they contribute.

interest payments crowdlending
In crowdlending, if the business gets to obtain financing but fails in the end, the money must be reimbursed regardless. Following an interest rate and payment dates agreed in advance. Source: progas.com.mx

Anyway, which one suits me best?

That depends on what you need to finance and what you’re willing to offer and receive. Crowdfunding allows you to finance personal projects and at the same time, emerging companies. Even if your company is of high risk, it’s possible to obtain the financing you need. But in this case, you expose yourself to failure as happened to Pebble or have problems with the delivery of perks as in the case of the Coolest Cooler.

On the other hand, if you’re looking for money for your startup or company, you may prefer crowdlending. But if that’s the case, you must do more to turn your business into a convincing and well-defined project. No investor is willing to give money for a project that they consider of high risk. But if your idea is well-worked and you demonstrate market knowledge, you’ll have a good chance of convincing potential investors.

crowdlending & crowdfunding
In a very prepared scenario, it’s possible to apply both financing methods. One after the other, but this requires a lot of cunning and care. It’s not advisable to take a risk if you’re not prepared for what might happen. Source: CMZ Abogados

Financing a business with crowdfunding requires creating a solid and vast community. Start contributing to your campaign once it’s live. This community will become your future customer base, which increases the profitability of the business. Resorting to crowdlending means having a strong business with great opportunities in the market, a convincing business model and the possibility of being able to pay the interest that’s asked of you.

To tell the truth, crowdfunding enjoys greater worldwide popularity. But that doesn’t dismiss crowdlending as an alternative method of financing. Both methods, if carried out properly, can help you boost your business. It’ll depend on you to choose the one that best suits your needs but that you know you can do without major problems.

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Crowdfunding or crowdlending, what do you choose?