Bank loan v.s. crowdfunded loan. What is the difference?

2min read

Bank loan v.s. crowdfunded loan. What is the difference?

Both loans will get you the funds to grow your business, but the process of securing those funds is very different. The resulting obligation would likely be very different too.

Different process

For a bank loan expect to spend most of your time on paperwork and collecting documentation, then waiting for a response. Your personal credit score would almost certainly be checked.

For a crowdfunded loan, most of your effort will go into finding the people that will invest in your loan. You would have to spend time preparing your campaign as well. However, your credit score will not be checked, since your friends and family would be the judge of your creditworthiness, not a credit algorithm.

Different obligation

Company assets and or personal assets are used to secure a bank loan.  It is almost always personally guaranteed by the business owner. A crowdfunded loan is unsecured and without quarantine by the owner. If you are able to crowdfund a loan, your company will have better financial flexibility.

Loans for Start-Ups?

Banks don’t usually lend to start-ups, especially if you don’t have personal or business assets to offer as collateral. If you have a solid business idea and people that believe in you, you could raise the money for your start-up even if your only assets are your business plan and your reputation.

Crowdfunded loans with benefits

There could be a number of additional benefits that come with a crowdfunded loan:

  • Customer loyalty. Customers are “invested” in your business’ success. 
  • “Word of mouth” advertising. Investors are naturally great advocates for a business. 
  • Buzz factor. A crowdfunding campaign may increase visibility and create buzz about your company in your community.

Read More TEN Capital Education Here

Hall T. Martin is the founder and CEO of the TEN Capital Network. TEN Capital has been connecting startups with investors for over ten years. You can connect with Hall about fundraising, business growth, and emerging technologies via LinkedIn or email:

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