Equity-based crowd funding is one of the newest ways businesses particularly startups can get small business financing without getting a traditional small business loan. Whether fear that the banks might say no or not wanting to deal with the hassles, paperwork and time constraints of a corporate bank, more and more businesses are turning to small business loan alternatives, such as factoring receivables, unsecured business loans, and now equity-based crowd sourcing.
Equity-based crowd funding is the Johnny-come-lately of the burgeoning space of small business start up financing alternatives. Since banks have cut back on issuing small business loans, more third-party institutions and entities have been popping up offering new business funding with various stipulations and conditions.
JOBS Act Supports Start Up Business Funding
The Jumpstart Our Business Startups (JOBS) Act of 2012 was recently given legs by the U.S. Securities and Exchange Commission (SEC) making hard-to-get capital more available to the masses and everyday business owners. Using the tools of the web and its platforms, the law enables people with some spare cash to become certified investors and participate in equity-based crowd funding for small businesses, though they must qualify and meet certain requirements. Startups seeking cash can use these web platforms to promote how they are seeking x amount of dollars to grow their business and expand.
Financing a New Business with Crowd Funding Requires Diligence
In lieu of paying interest or other fees that small business loans may require, equity-based crowd funding requires that you turnover a stake in your business, revenues or more. As it is still a new method for obtaining small business funding, business owners must proceed with caution and familiarize themselves with the law, contract terms, and possible consequences. Because it is such a new space and so much of it takes place online in a somewhat anonymous environment, possibility for fraud remains.
The process for applying for equity-based crowd funding is multifaceted and can become complicated as it is still a very new channel for getting money for your business. In some situations a business may be able to get cash quickly, in others a business may have to wait. This sort of uncertainty may also give some business owners, especially those requiring financing right away to seek another funding option.