Crowdfunding and P2P financing have recently gained popularity as alternatives to funding options from more traditional financial institutions, especially for SMEs and small businesses. Both crowdfunding and P2P financing are new methods to gain capital. Despite the relative newness of both these financing models, it seems they are here to stay – especially as crowdfunding and P2P financing share great advantages for small businesses. Below are 4 advantages of crowdfunding and P2P financing.
1. Provides easy access to capital
The main reason why both crowdfunding and P2P financing have become great alternatives for gaining capital is the ease of the application process. With crowdfunding and P2P financing, banks and venture capitalists are no longer the only bastions for raising capital.
Additionally, P2P financing is very suitable for small businesses as its products don’t require assets and collateral. Creditworthiness is mostly assessed through business health and financial data. Meanwhile, with crowdfunding, you only need minutes to put up your campaign and information onto an online crowdfunding platform when you are ready.
2. Great marketing tool
This is an advantage more in line with crowdfunding. Crowdfunding is a great way of introducing a new product or your business to the market via an online-based platform. It is a free and easy way to reach various channels to spread your campaign, especially as many crowdfunding platforms are integrated with social media mechanisms so it will be easier to generate traffic to your website and other social media pages. Crowdfunding can help entrepreneurs get organic visits from unique users and potential funders.
3. Quick funding
P2P financing circumvents the typically lengthy process of a financing application in addition to the difficulties and requirements prospective applicants face. Bank financing can take months before approved funds are disbursed. By contrast, crowdfunding and P2P financing can fulfill a loan in days, even hours so long as there is enough interested issuers, businesses, and investors.
4. Investment diversification
Crowdfunding and P2P financing attract not only businesses and issuers, but also investors. With crowdfunding, most of the investors will get physical gifts and tokens of appreciation from the crowdfunding campaign creator or the business. But P2P financing offers an investment instrument. By financing quality small businesses, investors can get high, periodic returns on their investments along with additional advantages like low entry barriers and flexibility. On a P2P financing platform, investors are free to choose which companies and businesses to invest in and how much they want to invest. This type of investment spreads investors’ risk and is great for teaching beginning investors on the importance of diversification.
The above are benefits of crowdfunding and P2P financing that you should know before you get involved in either of them.