There’s a new hot word in business financing: crowdfunding. This source of revenue is quickly becoming one of the most popular ways to secure the funds you need to see your vision to fruition. Traditional business loans are becoming harder to secure, so you must think outside of the box to get the cash you need to open your doors.

Traditional Small Business Financing

It’s important to understand the difference between traditional business financing and crowdfunding before you can determine if you’re as excited about this prospect as many others are. Traditional business financing is offered through banks and other qualified lending institutions. The money is secured by collateral and must be paid back, usually with interest.

For example, assume you are a whiz in the kitchen and have been told for years that you should open a catering business. You finally decide to take the plunge but find that you need more startup cash than you have saved. You go to your bank to secure a loan. The bank will request that you fill out a detailed application and back up any business loans with your own possessions.


Crowdfunding is exactly as its name suggests: you get money from a crowd of people. You propose your catering business idea on a website, and people who are interested in supporting it give you money to begin your venture. The amounts can be anywhere from a few dollars to a significant investment; it depends on the donor, and, yes, you just noted the word “donor.”

You don’t have to pay your crowdfunding group back as you would a bank loan. Rather, crowdfunding works like a gift, and the money is yours to keep. In some cases, people may add stipulations to their funds, so you’ll want to keep this in mind. You’ll also want to keep in mind that you won’t really know who is investing in your business, and there is no guarantee that you’ll receive all the cash you need.

Small business loans or crowdfunding; which is better? Both have their own sets of pros and cons, and depending on your circumstances, crowdfunding may be the better option, particularly if you face rejection from the bank on your loan application. Still, there’s something to be said about securing a loan from an established financial institution with the government backup via the FDIC. Either way, you deserve to realize your dreams and a small business loan or crowdfunding can get you started.