Simply put, a business loan is a sum of money lent to a business by a financial company or person. More formally termed as capital, it allows the receiving company to make acquisitions or otherwise pay their business expenses – including inventory, payroll, overhead, fund expansion, etc.
Crowdfunding, on the other hand, involves the pursuit of smaller pledges or donations via nonprofit organizations/persons. You obtain these donations by making a sufficiently-attractive business pitch. There are several different kinds of crowdfunding; we will delve more into what both business loans and crowdfunding types entail shortly.
The Business Loan
There are more business loan options than we care to name in this blog, but we will appraise you with the more common ones. Most people are aware of business credit cards; these are best used for expenses you incur after you’ve set up your business – office supplies, etc. Similarly, a business line of credit is a more advanced type of credit card. In that it is more open-ended due to its flexibility.
The equipment loan is a specific type of business loan favored by construction companies and any other that uses large, industrial machines. These are expensive to purchase, and the interest rates are favorable enough to make them viable for the operational lifetime of usage.
Other business loan types include the merchant cash advance, invoice factoring and financing, term loans, and the lofty SBA loan from the federal government. It’s worthwhile to take a look at each one to see what best suits your business needs.
Similarly, crowdfunding has many different variations – if you wish to go that route instead of the business loan route. As an entrepreneur, you should become familiar with the four different kinds:
Crowdfunding using company equity: This one is exactly what the title entails: you part with a fraction of your company (similar to how stocks work) for funds.
Crowdfunding the Kickstarter way: There are quite a few organizations that have adopted this incentives-laden method of acquiring donations. You reward donors on the back-end (as you become successful) for funds donated on the front-end.
Crowdfunding through donations: one of the best kinds if you can develop a product that resonates with donors.
Peer-to-peer, debt-based: these entail low-interest rate loans that tend to be riskier than other types.
For more information on crowdfunding and business loans. Check out the Lode Capital business blog and website for services.