Various sources are available in the financial market to generate money to start up a business, but all of them have merits and demerits. So, it is always advised to select the one who can give you more outcome than loss. Now, here you will go through the two modes of financial tools and their key differences. The comparison between the Crowdfunding and small business loan are listed below which will help you to distinguish them more effectively.

Crowdfunding vs. Small Business Loan

What is Crowdfunding?

Crowdfunding is a method of funding a project by raising the capital from a large section of people via an online method. In short, it is a kind of donation offered by the mass to support the startup of a business whose owner is financially incapable. The Crowdfunding platform is social media and Crowdfunding sites. However, if you have good reach in society, then it may help you to generate the fund for your business in an easy manner. 

How does it work?

In the traditional method, you will have to work on the ideas, research, business plan and much more to generate money from the banks, angel investors, venture capital organization and corporate. The chances that your idea may hit the financial firms are quite less and the failure of the same may result in the drowning of the business. But, Crowdfunding is quite different from the traditional method because, here you are going to promote your ideas at the social network and if your idea has some weightage and is liked by the people, then they will help you financially. 

Benefits

  • Stick Out

With Crowdfunding platform you can reach to the mass with your ideas and this will enable you to interact with the investors who can raise the fund for your business.  

  • Marketing

Crowdfunding requires marketing skills because you will have to present your business plan in social media and other marketing platforms. Better the marketing, more the possibility to raise the fund.

  • Effective online method

Crowdfunding reduces the paperwork, binding documents and much more and this enables you to perform the entire task in an online platform. So, it reduces effort and time in updating the business plan.

  • Demerits

  • The probability of getting finance totally depends upon the people and your ideas. If your business plan reaches successfully to the mass then you can raise the fund otherwise, your entire effort will go in vain. As per the research, 1 out of 10 gets success in the Crowdfunding. Now, you may calculate your possibility of getting money via this method.
  • If you fail to raise the money then your entire effort and money will be wasted and may also result in the damage of your business.
  • If you have not secured your ideas with the patent tools, then chances of stealing the ideas are quite higher.
  • Crowdfunding gives much more authority to angel investors to command your business.

Small Business Loan

It is one of the best ways to start up a new business or to expand the existing one. There are various means to get the Best Business loan for small business. Even the government also provides assistance to the new entrepreneur and supports them so that they can successfully start a new business.

How does it work?

As stated earlier, a small business loan is provided by the Government and online lenders. SBA is a Government agency who offers various loan programs to support the entrepreneur such as 7(a) program and through the same, the borrower can use the loan amount for the business capital, 504 loan program enable the borrower to purchase the equipment from the loan amount, and the disaster loan program helps those borrowers who have lost their business due to disaster occurred by the natural calamity. So, these were the loan programs offered by the SBA. Actually, SBA act as a chain between the lenders and the borrowers and also becomes a guarantor for the borrower. The interest rate against the loan amount is quite a minimum one and the borrower gets a loan from the certified lenders.

If talked about the online lenders, then there are various lenders who offered loan at various interest rates and the same depends upon your credit score. A person who has good credit score gets a loan at a minimum interest rate and the person who have a bad credit score also receive the loan at a high-interest rate. Hence, in both the scenario, the borrower gets the loan while in Crowdfunding the possibility to get the capital is quite low.

Benefits

  • If you have a good track record with the lenders and have maintained the credit score, then the possibility to get a loan becomes higher. 
  • A borrower gets a chance to meet the certified lenders via an online method and they can also choose a one as per their requirement. 
  • The speedy process enables the borrowers to avail the loan and can utilize the same on business on time. The process includes the creation of an online account, filling of a loan quote, selection of a lender and uploading all the relevant documents needed for a small business loan.
  • Through the small business loan, you can receive $50,000 to $5 million and you can avail as much as your requirements but make sure you will have to fulfill the terms and the norms of the lenders.
  • In a small business loan, you can get the loan at a minimal interest rate and this will help you to repay less. The processing fee and other charges are also less. Hence, you will get more and deduction in the loan amount will be less.
  • The best part is repayment, in the small business loan you will get an opportunity to repay monthly through EMI and this reduces the financial stress. Amid applying for a small business loan, you can also calculate your monthly EMI and as per that you can go forward for the loan. 
  • You can also go for the refinancing debt to clear your previous debt and this feature is quite unique. 

Demerits

  • It is quite difficult to avail a loan for the startup.
  • Your business age should be a minimum of 3 years to avail a loan.
  • If your debt is too high and your business is sinking, then it is hard to get a business loan.

Hence, these were all about the small business loan and Crowdfunding. Now, it’s upon you to decide whom to choose. But, as per the calculation of the merits and demerits of both, it is best to go for the small business loan because you will get the financial stability.