Crowdfunding vs. Peer-to-Peer Lending

Written By Dave Lavinsky
Score board team one with seventy two points and team two with sixty four

With the internet making several new forms of funding available to entrepreneurs who want to sidestep the hassles and qualification of getting bank financing, there’s a little confusion about peer-to-peer lending sites and how they’re different from crowdfunding.

I’m going to explain the difference, and some of the advantages and disadvantages of each.

Peer-to-Peer Lending

Peer-to-Peer (or P2P) Lending transactions occur between individuals without going through a bank or traditional intermediary. Without the middleman, borrowers can get better terms and access to more capital than before, and lenders can earn higher returns.

And as can be expected, there are several popular websites that connect borrowers and lenders directly, such as:

  • Prosper.com
  • LendingClub.com
  • Upstart.com
  • FundingCircle.com

The downside of P2P lending is that you have to pay back the loans.

Crowdfunding

With crowdfunding, you’ can tap a lot more investors and raise unlimited amounts of money. And, you provide rewards for those who give you money rather than needing to repay a loan. And, your chances of raising crowdfunding are much higher than with P2P lending; statistics show that 50% of entrepreneurs who try to raise crowdfunding successfully do so.

With regards to rewards, with Crowdfunding you want to offer something to the people who help fund your project, such as future redemption of the product or service you are creating, discounts, prizes, gifts and bonuses.

A percentage of the money raised will in all likelihood come from friends, family, and people in your existing contacts. However, crowdfunding sites give you an organized and safe way to advertise the opportunity, and people can see the social proof of others getting on board and funding your project.

Examples of crowdfunding sites are:

  • Kickstarter
  • IndieGogo
  • GoFundMe
  • Fundly

{Note: There is also a type of funding called “Micro-funding,” which is a means of offering funds to impoverished people who don’t have access to traditional forms of loans. These funding amounts are generally very small and are used by the recipients to launch personal businesses, such as sewing, trading, making crafts, and other manageable ventures where a little funding can go a long way for the person and their family.}

I prefer crowdfunding over Peer to Peer Lending because of the potential to raise more money through a larger group of people, and not having to pay the money back (nor interest). I also like that crowdfunding gets you customers who give you credibility and who, through word-of-mouth, can help you promote your company. However, I like diversifying my funding, so you should also check out the peer-to-peer lending sites to decide if they’re worth pursuing for your business.

How to Get Funded in 90 Days or Less

If you need funding fast, you have to use Crowdfunding.

Here’s how to do it right

Growthink Crowdfunding Formula

1. It’s fast. You’ll get the money in just 90 days or less.

2. It’s easy. You don’t even need a business plan – you can get started right away.

3. You keep ALL the money. It’s not debt, and you don’t you don’t give up any ownership in your company either…

Click here to learn more now

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