Self-employed people often find it difficult to get a company loan from a bank. Therefore, crowdfunding can be an alternative to a bank loan, especially for self-employed and freelancers. While this group financing has long been established in the USA and Great Britain, it is only in Germany that it has its big breakthrough. On a financing platform, the self-employed person can register, present his or her project/service and determine the financing amount. Everything you should know about swarm financing, you will learn in this article.
What is crowdfunding actually?
Translated, “crowd” stands for quantity and “funding” for financing. In UK, this form of credit can also be called swarm financing. Crowdfunding gives the self-employed the opportunity to finance projects or start-ups. The special feature of group financing is that several people support a project. A project cannot be financed by this form of financing alone. However, the money only comes together if several private individuals or even companies support the project financially. Individual donors will then contribute smaller sums to the realisation of a project. In order to find borrowers and lenders, there is the financing platform, where investors can inform themselves about the projects.
For whom is crowdfunding financing suitable?
Crowdfunding is intended for self-employed persons who do not receive a loan from banks. Crowdfunding is then an alternative. There is no need for lengthy negotiations with banks or other companies. In addition, the conditions for this type of financing are often better than those of classic bank financing. Self-employed persons who need money bring their project in detail and comprehensibly to the website of the financing platform. Investors or also private investors see this project, after it was released by the platform and can make bids on it.
The money is always earmarked for a specific purpose for an idea or a project. But only if enough supporters or investors bid on the project, it can be implemented. Before that, however, the self-employed person will determine the financial volume together with the platform. If the desired amount is not achieved within a certain period of time, the capital will be paid back to the users. After the financier has registered on the crowdfunding portal and under the conditions of the platform operator, the financier can invest his capital. The consideration he receives can be material or non-material.
Advantages and disadvantages of a crowdfunding financing platform
Advantages at a glance for crowdfunding:
- In a short time money can be “collected” for various projects
- Smaller amounts keep the financial risk manageable
- The interaction of dialogues on the platform often leads to better ideas
Disadvantages at a glance in crowdfunding:
- A lot of time has to be planned for the crowdfunding process to be properly prepared
- If the requested amount is not reached, the project will be cancelled
- There is no liability of the platform if the project fails
The big advantage of crowdfunding is that even unconventional projects or ideas can be implemented without bureaucracy. Often these projects do not stand a chance with banks. The disadvantage is that only small sums are awarded. This makes it difficult, for example, to set up new businesses.
Choosing the right financing platform is crucial
Nevertheless, a successful project can not only increase the level of awareness, but can also mean a start. At first glance, group financing may seem simple. But it requires a lot of work and planning and there is no guarantee of success. After all, the project can only be implemented if the specified amount is reached on the financing platform. This creates a certain amount of pressure, not only for the self-employed person but also for the funding agency.
It is therefore important that the right platform is chosen. This is the only way to ensure that the right audience is addressed. But the advantage of swarm financing is also shown by the fact that donors are already there. They just have to be convinced. Therefore, trust and transparency should prevail and the project should be presented openly.
This is what financiers and self-employed people should know about crowdfunding!
With a crowdfunding not only the financier profits, but also the borrower or the capital seeker. If the suitable financing platform is found, independent ones can make their projects and projects on the platform public. The projects are presented in detail and comprehensibly. The self-employed person describes his or her project in a business plan, so to speak. Interested providers will then make a risk assessment. The costs and the height of the interest depend on it. In principle, investors must be convinced of the profitability of the project.
Many people then use small amounts of money to support, for example, business start-ups, further training, environmental projects or real estate redevelopment. Crowdfunding has meanwhile developed into a successful model. Thus, innovative projects can be realised with group financing via the platforms. Investors can expect a good return and self-employed people do not have to run from bank to bank to get their project financed.