Photo Credit: Seth Anderson/ Flickr

Photo Credit: Seth Anderson/ Flickr

It’s easy to look at crowd funding as the new, great alternate to bank loans. After all, there are very famous success stories now of individuals that have used IndieGoGo and Kickstarter to jump start and fund a new, innovative project. Few business owners and entrepreneurs however, are aware of the cons attached to crowd funding.

Foremost and for the uninformed, crowd funding occurs when individuals contribute anywhere from five to five hundred dollars for an idea that a business owner can pitch. From a new collectible card game to affordable 3-D printers, there is theoretically a new idea that when presented, will draw in large amounts of financial support. In exchange, the business owner will usually provide a good to the donor, depending on how much money was donated.

The first issue facing crowd funding is the success rate. If a business owner cannot entice enough doners or has an idea that is either too complex or “mundane” by the standards of the average layman, the crowd funding campaign may not raise enough money. 57 percent of the nearly 150,000 projects on Kickstarter have not been successfully funded. For the business owner seeking to acquire a new piece of equipment, crowd funding is not viable.

Even for the innovative first-time entrepreneur, crowd funding is more difficult than it looks. In the event that costs involved with manufacturing and shipping are not properly calculated, the project runs going over budget and disappointing many potential buyers. Moreover, by not turning to a reliable creditor, intangibles such as advice and guidance may be lost.

On a more general scale, there is also the problem of having too many new entrepreneurs competing against one another from a pool of monetary resources that is finite. It promotes a zero-sum game mentality where entrepreneurs seek to deprive other startups of their funding rather than working with one another to innovate entire industries.

Crowd funding then, is far from a grand solution to finding an alternative to bank loans. Business owners should consider alternatives such as factoring to finance their innovation and their expansion.

Overnite Capital provides a reliable, quick cash flow. Unlike traditional bank lines of credit, that focus on a credit score, factoring focuses on receivables from customers and their ability to pay. And unlike crowd funding, Overnite Capital has both the assets and the expertise available. For more information, please call us today or message us via the Contact Us tab.