As you embark on procuring funds for your startup, you will face trouble while deciding whether to use business loans or crowdfunding. Crowdfunding has recently gained traction and is a significant funding option.
Using crowdfunding for getting a startup loan for a new business would require you to approach several people. First, you need to pitch your idea in a way that would convince them to provide you with the required funds.
Crowdfunding vs Business Loan
Finance Provider
In crowdfunding, it is the crowdfunding platform that is responsible for issuing funds. Usually, several individuals invest in your startup, and their money is collected and pooled together.
For procuring a business loan, you need to approach financial institutions like an NBFC or a bank. You can even use the online portal for this.
Application and Approval Procedure
You can apply for a business loan, but the probability that your application will get approved depends on many things. First of all, the banks go through your credit report and make sure that you are maintaining a good credit score.
They will also check your bank statement, income tax return, and business plan. You have to pass these eligibility criteria to borrow the loan.
But in the case of crowdfunding, there are not so many complications. The procedure is simple; you just need a business plan that is worthy and good. The strategy has to be well-planned so that you can get more and more people to fund your startup.
Credit Score
As mentioned above, it will become difficult for you to get business loans from banks if your credit score is bad. So, make sure that your personal, as well as business credit score,is good. It is suggested to fix up a bad credit score as soon as possible.
However, you do not have to worry about your credit score to get funds through crowdfunding.
Rate of Interest
No interest rate will be levied if you use crowdfunding for raising funds.
But in the case of business loans, there is some rate of interest attached to the loans.
Repayment Conditions
In the case of business loans, you have a lot of repayment options. First, you can repay in equal monthly installments. If not that, you can also make a prepayment or part payment. However, a fine will be imposed on you if you violate the terms of the agreement.
This is not the case with crowdfunding, as you need to provide the shares.
Conclusion
Choosing a funding option that is fitting for your business can provide ample scope for indecision. It is not as easy as it seems, and failing to make the right decision can take your startup idea far away from being a hit. Banks are great to get a home loan for under construction property, but for a startup, you need to evaluate their pros and cons properly. Crowdfunding is new and has disadvantages but can be a great source of funding.
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