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

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

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 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. Your credit score will not be checked, since your friends and family would be the judge of your credit worthiness, not a credit algorithm.

Different obligation

A bank loan is typically secured by assets of the company, or by personal assets. 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 asset to offer as a 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. Your customers could be literally “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.

Where can you crowdfund a loan in Texas?

You have to set up your crowdfunding campaign on a Texas registered crowdfunding portal. There are currently only two registered portals that specialize in debt, and they are quite different: Lendoor and NextSeed.  Lendoor is the only platform that works with start ups and does not require credit check.