So, you plan to start a new business and you find yourself lacking the money to fund it. What do you do? Ask for a loan from a bank? But what if you’re a new business owner and don’t have anything on you to serve as collateral? You’ll never get that loan approved. Dreams denied, you slink back into your chair and resign to just keep on being a corporate wage slave.
Or maybe not. Maybe you don’t need to ask the bank for a loan when companies like fundbox pay on a proof of concept. What if all that you need to get that funding is to be connected to the Internet and know the right people? Your great idea needs to materialize, so if you’re willing to do anything to get your business going then you might as well just do everything you can.
The Internet has grown into a state where it is now able to gather people all over the world and help fund what they think is a great idea. Not only that but there are companies and websites that can lend you money too. Both funding models are different from one another and each one has an advantage over the other. But learn to combine them and you’ll be able to fund any venture you want.
The two models
First off, there’s e-begging. E-begging or Internet begging is, in short, begging over the Internet. You are literally depending on the goodwill of the people to fund your start-up. However, there’s a difference between begging in real life and e-begging on the Internet. Most e-begging sites ask you to define who you are, what do you do, and where you are going to use the money. Some of these sites would even require you to display pictures. For example, you have invented a device that takes advantage of the wind created by your vehicle while it moves forward to generate electricity. You are required to take pictures or videos of it working to show that there’s a working proof of concept.
For those with physical products, people who donate are also treated as the first customers. In exchange for funding the start-up, the business owners may give away products to them in return. That makes sense because people who usually donate may have a personal interest in the product. Gamers, for example, would be interested in funding the game you are making, so giving them a copy of the game as thanks would make sense.
The other model is based on loans. A company provides funds for your business and, in return, you pay them back in an agreed time, a specific amount. They can provide you the funds as early as the working day after you agree upon the terms of your loan.
Advantages and disadvantages
So, let us compare the advantages and disadvantages of the two models. First, e-begging has no strings attached except for your reputation and the name of your brand. The people who donate to your venture want to see you succeed, so that’s your only responsibility to them. If you fail or renege on your promises, this will negatively impact on your name and everything else that can be related to you, like your existing businesses. On the Internet, almost everything is well documented, so if you try to do anything weird or funny they will remember. Even if you change names they will definitely find out about it. You are “serving” the most ruthless bosses ever. Succeed, however, and you’ll make your name known. Your reputation will increase, and should you choose to e-beg again, you’ll find more willing donations (depending on the nature of your next venture, of course).
A disadvantage is that you are relying on your audience’s good graces. This means that you might not even know if there is a big enough audience to want what you are offering, so it will be entirely unsure of how much you can expect to get. Those sites that require you to set a goal amount won’t even release the money, should the amount not be gathered after a set amount of time.
The second disadvantage is that you don’t know how long gathering enough funds this way will take. This could go on for weeks or even months, which is why you need to advertise your cause to friends and acquaintances. You need to promote it, which takes even more effort on your part to succeed. And, as said before, if a certain amount of time passes and you fail to gather the targeted amount, the website may deem your venture a failure and close off the donations and return the donated amounts to the people.
The third is that some sites allow the people who donated the option to take back the donated amount if they change their minds as long as the money hasn’t been released to you. If you do receive the money, it is yours to use as you please. You are not obliged to pay them back, but it is encouraged that, as an exchange, you provide products and services to them.
As for loans, the advantage here is that you’ll get the amount fast, without fail. The only thing expected of you is that you’ll honor the contract and pay up when you need to start paying. They might check on your credentials though.
If you are not in a hurry, you might want to choose e-begging instead, rather than ask for loans. E-begging is also a great way to see if there is an audience for your products and services. If your begging fails, at least there is no harm done to your reputation. You may want to reconsider your plans. Loans, however, are faster and can provide you with immediate funding. So, if you know what you’re doing and are sure that you can sell your product or service then choose to get a loan instead.