Peer to Peer Money Lending: Different Ways to Finance Your New or Existing Business
Most entrepreneurs face the dilemma of obtaining financing when starting a business. Almost every entrepreneur knows about angel investors and venture capital. However, this solution is not the solution for everyone and is generally available unless you have a proven track record or have built a critical mass with your target customers. So how do you finance your idea until then?
Standard funding sources
The reality is that not many ideas are funded by angel investors and early stage venture capitalists. As a result, what ends up happening is that the entrepreneur will pool time and resources from friends and business networks to get the business off the ground. During this phase, the entrepreneur will often incur some expenses until the initial income can be generated. If family and friends won’t provide seed funding, then some entrepreneurs resort to using their credit cards or even personal savings to take the business idea from concept to reality.
The recent financial crisis has created a more difficult situation for entrepreneurs and small businesses because the credit environment is extremely tight; Traditional financial institutions are being cautious with their money, making it difficult for a new business to get a loan.
However, not everything is pessimism. With every difficult period like this, innovation seems to spring up. The financial industry is no exception and innovative solutions are emerging to help entrepreneurs make their dreams come true.
Alternative sources of financing
Several alternatives have emerged that connect people who have money with those who need it, and this is great news for those looking to start a new business: Peer-to-Peer Lending, Microfinance and Crowdfunding are some of the financial innovations that are arising. of the Web 2.0 revolution.
Microfinance (or Microcredit): The concept really gained popularity thanks to Mohammed Yunus, a Nobel Prize winner and founder of Grameen Bank. Since then, additional services like Kiva have sprung up to help entrepreneurs get started. While sites like Kiva have primarily focused on third world countries, others have now opened up to American entrepreneurs with the help of fantastic organizations like Accion USA and Opportunity Fund.
Fundraising: This concept revolves around getting the “crowd” to fund you through widgets and websites. Widgets and websites allow entrepreneurs to raise funds from others through the Internet and their social networks (eg Facebook, Twitter, MySpace, LinkedIn, etc.). This concept has worked well for the music industry with sites like SliceThePie.com and SellaBand.com leading the crowdfunding movement.
Peer-to-peer loans: Last but not least, peer-to-peer lending sites like Lending Club or Prosper are becoming more and more popular as a source of financing for entrepreneurs. Also known as social lending and peer-to-peer lending, this concept refers to financial transactions that occur between individuals without the intermediation of a traditional financial institution. About 7.5% of the loans in Lending Club are used for business purposes up to $25,000. This option is not for everyone, as the borrower must still meet certain requirements, such as having a responsible credit history.
In short, if you have the right idea, passion and drive to make it happen, don’t let it die – give it a try.