Why Do Entrepreneurs Are Likely To Use Equity Crowdfunding?

Why do Entrepreneurs are Likely to Use Equity Than Loan Crowdfunding in Raising Capital for Starting New Businesses?

Many people like to start business using crowdfunding, but sometimes fail to know the right method to use in capital raising. Crowdfunding is the way of raising money via an online contribution in order to finance small businesses. This is done where the large number of people put together the small amount of money using the internet and use that money to finance new businesses and existed businesses (Nesta, n.d.). Crowdfunding has different types like reward -based crowdfunding, donation-based crowdfunding, equity crowdfunding, and crowdfunded lending. This article will be focusing on loan, and equity crowdfunding. Equity Crowdfunding:

Equity Crowdfunding Loan Crowdfunding

When people use, equity crowdfunding the investors give capital to small businesses with 1 to 10 employees (Emmerson, n.d.). The investors are willing to invest in a small startup business of 10 employees and above (Emmerson, n.d.).

In equity crowdfunding, the investors start with the expectation of exchange for shares (Emmerson, n.d.). The investors who use loan crowdfunding expect to get the interest in a given period of time basing on the amount of money they have invested (Emmerson, n.d.).

In equity crowdfunding, there is growth in share value paid dividends as time goes on depending on the interest that is made by the business (Emmerson, n.d.). In loan crowdfunding, the interest rate is fixed regardless to the increase in profits of losses of business (Emmerson, n.d.).

The fees charged from the investors are calculated in percentages of the amount that were invested, and in most cases the fees rounds between 1% and 2%. Therefore, due to the low fees that are paid for equity crowdfunding, it makes it the best way of investment (Lake, 2015). Equity crowdfunding also is important because it helps the young entrepreneurs to get strong investors from different places. Based on this, the investors will have the shares in the business and there will be motivated to invest in the ventures they are interested in (Franta, n.d.). Furthermore, equity crowdfunding is important because there is sharing of ideas and feedback for improvement. In equity crowdfunding, the investors and business owners will share the ideas because they all need to see their businesses being successful. So, there will be sharing of ideas and feedback of improving the performance and sustainability of the business to increase the values of shares of the investors. Equity crowdfunding also helps the new business starters to promote the brands of their businesses (Nibusinessinfo, n.d.). This is done through pitching that are done on the platform and once they win the hearts of investors, the investors also keep talking about the business and call other strong investors, which leads to the