Getting financing for your new company can be a headache, but there is a variety of alternatives to get the funds you need, among them crowdfunding or bank loans. Which one will be better?

Before starting to look for financing you should have a very well defined product, the clearer the business proposal, the better, otherwise it will be impossible to get the funds for your new business.

Between the bank loan and the crowdfunding the most conventional is the first one, in addition, it is the one that takes more time existing, on the other hand the second one is a strategy that is just taking force. Therefore, it is common to have more confidence in bank loans. But is it still reliable?

Crowdfunding vs. Bank loans Which is better? 1

Bank loans

A loan from a financial institution consists in granting money to a company with the condition that said company will pay an interest rate in a stipulated time.

One of the main drawbacks is that the banks require some kind of personal or real guarantee as a way to guarantee the return of the money or the payment of interest. This represents an obstacle for several start ups since they do not have any kind of good to offer the bank as a guarantee.

Crowdfunding vs. Bank loans Which is better? 2

Another process that can become cumbersome is the protocol for accepting loans because banks usually evaluate the business idea, which will use the money, the profitability of the product, among other variables that may delay the process of building your business. A lot of time is lost.

That is why these loans are more viable when it comes to an established business or with an idea that is easy and safe to finance.

Crowdfunding

On the other hand, crowdfunding or collective financing is a strategy that consists of publishing your business idea on a platform such as Solidaridad Latina so that your business receives donations from several micro investors in exchange for rewards.

This practice has had a considerable growth, according to World Economic Forum (WEF), since 2010, crowdfunding has increased its annual rate by more than 110% and in 2015 reached a volume of almost 70 billion dollars worldwide.

Crowdfunding campaigns have the great advantage of allowing you to connect with your clientele before the product comes out. Also, they require less time than applying for a bank loan.

Crowdfunding vs. Bank loans Which is better? 3

Loan crowdfunding, a third alternative

Also known as crowdlending, it is a mixture of the concept of crowdfunding with loans, without intermediary banking entities. The businessman publishes his business in an online platform and investors lend funds with the promise of the return of their money plus an interest rate.

The crowdlending platform ensures that planners can return the money provided by the microinvestors, that is, they have to justify how the loans will return for the campaign to be approved by executives of the web platform. That way they all win.

Crowdfunding vs. Bank loans Which is better? 4

In conclusion, crowdfunding has displaced bank loans because they reduce time and there are no exhaustive selection processes. Collective financing is what is best for you if you are starting a business, but if you already have a company you can use a bank loan without problems, you could even risk crowdlending if you want to avoid banking entities.

In Latin America you need much more culture about crowdfunding, share this article with your friends so that together we can make this financing alternative known.

If you like this post, you may be interested: 5 Types of crowdfunding you need to know

Crowdfunding an alternative to bank loans