In this article, we’ll explore the difference between crowdfunding loans and other forms of financing, so you can make the best choice for your business.
0
min read
When it comes to external financing, most business owners have a tendency to lean on high street banks or external big investors for funding. However, with digital platforms now able to bring together hundreds or thousands of small investors, many are now looking at crowdfunding loans – a type of peer-to-peer lending.
There’s an intuitive appeal to crowdfunding – rather than sourcing capital from an external institution, you can raise money from your customers, building relationships and personal investment. However, crowdfunding can also be a more complex undertaking – especially since you have to offer those investors something in return.
Crowdfunding, particularly equity crowdfunding, involves raising money by offering a stake in your business to multiple investors, often through online platforms like Crowdcube or Seedrs. It’s a powerful way to generate significant investment quickly, especially for startups with innovative ideas, strong growth potential or loyal customer bases.
But equity crowdfunding comes at a cost. While it can provide the capital you need, it requires you to give up equity in your business, meaning you’ll share both control and profits with your investors, which can number in the thousands.
Here’s a typical equity crowdfunding process:
This approach works best for businesses looking to raise large sums without needing to repay funds directly. However, once you give up equity, you’re no longer the sole decision-maker, and your investors will expect some form of stake in the business. This can be as formal as shares, with a say in the administrative functions of the business at an annual general meeting (AGM) or something more informal such as perks or discounts.
Another popular financing option is a small business loan – these allow you to borrow the funds you need without giving up any ownership in your company. With lenders like iwoca, businesses can access fast and flexible loans tailored to their needs, while keeping full control over their operations.
Small business loans can be secured or unsecured and typically have a fixed repayment schedule. They’re an ideal option if you want to grow your business, improve cash flow, or invest in new opportunities without sacrificing equity.
Both crowdfunding and small business loans can provide vital capital, but they serve very different purposes and come with unique considerations.
With a small business loan, you get to keep 100% of your business. Equity crowdfunding requires you to share ownership, and often, decision-making power with investors. For many entrepreneurs, maintaining full control over their vision is non-negotiable.
The goal is to get your business growing and become successful. If you’ve gone down the crowdfunding route, your investors will own part of that success—and share in the profits.
Crowdfunding is typically used for large-scale projects or long-term growth. But what if you need a quick injection of cash to seize an opportunity, or manage a temporary shortfall? Short term business loans are much more versatile. Whether you need to purchase stock, hire staff, or boost your marketing efforts, small business loans give you the freedom to spend where it’s most needed.
One of the biggest challenges of crowdfunding is time. You’ll spend weeks, if not months, preparing your campaign, pitching, and waiting for funds to come in. Even if you hit your funding target, there’s still a delay before the money is in your account. Small business loans offer much faster access to capital—iwoca Flexi-Loans can be approved and release funds in as little as 24 hours.
This speed can be crucial in helping your business stay agile. You can’t always predict when an opportunity or challenge will arise, but with quick access to capital, you’ll be ready to respond when it does.
While crowdfunding can be an exciting way to attract investors, it comes with strings attached. Investors expect updates, reports, and ultimately, a return on their investment. This ongoing relationship can add complexity to your business management. With a loan, once you’ve repaid it, the relationship with the lender ends, leaving you free to focus on growth.
Big ambitions require the right support. You might have amazing plans for growth, but lack the cash flow to make them happen. Or maybe you just need some breathing room to handle day-to-day expenses. Whatever the case, you need financing that works with your business, not against it.
iwoca’s small business loans are designed to give you fast, flexible, and stress-free access to capital, so you can focus on what you do best: growing your business. We don’t believe in convoluted processes or rigid criteria—our goal is to make it as easy as possible for you to get the funds you need, when you need them.
To find out how much you could borrow check out our small business loans calculator.
