Crowdfunding and Its Benefits to SMEs - Essay Example

There is usually an increase on improved business ideas from various cultures and traditions worldwide. The main problem of the venturing in business is the lack of finances and knowledge to run the businesses. It is a fact that every year there is a rise of entrepreneurs worldwide but to be successful one need to get sponsors to enable the smooth running of their companies. The idea of crowdfunding helps quite a lot in gaining resources and also financial satisfaction to the business owners from a group of individuals and organization with the mutual interest for future benefit from the small enterprise (Adams 2013). Though term crowdfunding is an internet term that refers to various methods of accessing funds through the net so many people mistake its function. It is web based and uses online resources to raise capital for the small business enterprise. The platform proves to be very beneficial to small enterprises because of its merits and policies. Though not used in the past the twenty-first century raised the bar on small enterprise funding creating and vast field of entrepreneurship and opportunity for small and medium scale business to rely on their peers and community for financing (BORELLO, DE CRESCENZO, & PICHLER 2015).

Various theories have been created explain and exploit the field in crowdfunding, but the most obvious factor is that it is used to source funds through socializing on the internet. These funds are usually based on the impressive ability of the borrowing company to convince the crediting organizations and individuals with their products and services. The crowdfunding opportunity was built on the principle of preordering of the borrowing company products (Bouncken, Komorek, & Kraus 2015). These products have been ordered even before they could surface on the market. Also, there is the belief in the crowd-funders ability to pay more for the product than the customers hence opening a better market for the product company financially (Stegmaier 2015). The crowd-funding business is majorly based on the form where the borrowing company needs to create a project proposal that must be reviewed by the creditors. The lending act usually takes place on the internet, and the procedure is to make sure the borrowing company gets legit organizations to invest in their products. The platform majorly revolves around the crowd-funders; their primary goal is on the participation of project creation, exploiting the pros and cons of investing in various companies with the aim of better finances through returns and interest (Crosetto & Regner 2014). On the other hand are the entrepreneurs whose role is to start an individual business but lacks funds. These companies are usually private with the aim of creation non-governmental organizations. The primary goal of these enterprises is to create freelance products but with the long-term purpose of creating a better and more structured business.

Being a new phenomenon there has been an increased focus on using crowdfunding venture; because of its technology advantage and the availability of the Internet. The platform is majorly raising money using web technology. These funds usually originate from investors and various individuals with the idea of venturing in start-ups, small and medium enterprises (Eniolaa & Entebang 2015). The funding is generally from small to the large collection of money online and calls also fall under rewards. But there are also different models in crowd-funding; communities crowd-funding and financial return crowdfunding. These two models have different ways of handling financial sourcing for the business set up. An example is community crowd-funding majorly relies on the morals and ethics of the donors to the up rise of the city with minimal interest on the future financial benefit on the enterprise; it is all about, sense of belonging, ethics in investing and moral awareness to the society hence sponsoring the small organizations. On the other hand, there is financial return crowdfunding; the model comprises of two types of crowdfunding namely, peer to peer and equity crowd-funding (Firoozmand, Haxel, Jung, & Suominen 2015). The platform is based on the fact that investors issue funds in the form of debt and hope for returns from the business in the shape of interest.

Crowd-funding is one of the backbones of sourcing capital for SMEs and startups, with the use of the internet; there is a large chance for the business owners to come across well-established funding. But there must be a mutual interest between the investor or creditor and the business. Handling a loan to a business is a great deal because the creditor will intern expect to get returns or be a shareholder in the company (Gerber, Hui, & Kuo n.d). The investor must first make sure that his or her investment is a company with a higher chance of success and a possibility of better returns rather than with a group that is bound to fail. With the two models on crowd-funding, there is usually a primary concern when using equity crowd-funding; lending money usually has some rules and regulations to follow (Stegmaier 2015). The main idea is the mutual benefit for both the business owner and the creditor to take advantage from the firm. Credit lenders usually make serious business scopes to study and predict the future of SMEs before they invest in the market niche. The mutual benefit drives the banks to offer business tips and education to the business owner in the case the field is good, but there is the lack of sufficient know-how.

Over the years, there have been cases on economic meltdown hence affecting SMEs worldwide. The economic crisis affects most of the small and medium enterprises because most of their financial sourcing becomes tight and unfavorable. The idea of crowdsourcing and funding creates a better platform with most business owners not relying on the banks for capital revenue (Kuppuswamy & Bayus 2013). The main disadvantages of relying on well-established institutes, for example, banks for funding in times of crisis is the possibility of reducing credit supply, increased interest rates, and harsh credit conditions. Crowd-funding does not have these liabilities because the agreement is between the business owner and investor on the outcome of the returns and the share percentage for the firm owner ( Lehner 2013). Crisis hitting the market means a lot of disruption in business with the possibility of some business failing while others are losing value to the market hence the reduction in active business.

With such financial crisis, it is usually tough for the SMEs to get access to funds from government institutions. These institutes usually also depend on private companies to help with funds because of the depreciation of the national currency. Finance is usually the backbone of setting up a successful business with most interest on the returns. With an improved internet based platform like crowd-funding, there is a better chance of sourcing funds from better and well-established donors (Mollick 2014). Technology opens different ways of accessing information and sharing the information with others worldwide. With the platform, it is also a unique way of expressing the skills and know-how of the entrepreneurs in their various fields because before getting funds the business must prove to be a success. The most important role is the assurance of arriving at set goals that will help secure funding for the company. There is also the provision of creating some fees to process the funds for the enterprise. The borrowing business has to comply with the rules and regulation of the donor company; these enterprises or individuals usually opt to receive application fees that help in the processing of the funds. Also, there is an additional charge of the annual management of the company and it is usually a percentage of the borrowed amount by the corporation (NIȚESCU 2015).

There are various diversify fields that come in hand with crowd-funding because numerous advantages, after its discovery there was the need to abandon traditional modes funding. The primary aim was to provide betters fund availability to help the SMEs to function sufficiently and adequately with the availability of enough money to run the small business (Taylor 2015). The platform assisted in handling situations such as providing better financial solutions to the SMEs business hence increasing their productivity. The lender companies also get involved with education procedure on financial matters; their scope is on how the companies can access better funding and adequate know-how on the various funding schemes (Pazowski & Czudec 2014). Also, there was the need of training the borrowing company staff on better management and technical skills. These are a very basic skill that equips the financing company with expectations from the lenders and also trying to reduce the shortfalls of the business, by creating a more suitable environment for success and benefit for both parties involved. By the help of education the borrowing company, there is a high chance of solving problems such as weak financial proposals, structure, and implementations, enhancing a better business cooperate where the owner and the lenders have a mutual understanding and expectations (Valanciene & Jegeleviciute 2013). Crowd-funding is not only a platform for sourcing money but also a better means of learning and adapting to the current trends of micro-finance.

To be successful it is imperative for the borrowing company should create a clear and precise project objective. An example is the clear understanding of the goods and services they offer. The knowledge should help in informing the donor company on the products pros and cons and why they should invest in the enterprise. The introduction pitch alone should contribute in drawing attention to the project and also attract more investors because the ideal concept is to receive as many funds as possible (SANNAJUST, ROUX, & CHAIBI 2014). The schedule should also be promising and covering all angles on the product review and budget. The most important section is the use of a dynamic and flexible marketing strategy by the use of social networks. The borrowing company should not only focus on a single market niche but should strategies on better and proficient sites that have legit crowd-funding companies. Marketing is all about the production brand if the company focuses on the creation of a marketing strategy that involves the use of presentation incorporating videos, photos, and the use of logos there is a better chance for receiving funds from donor companies (Steinberg 2012). All these strategies help in creating an environment that is free and conducive for conduction business.

With the opportunity to flourish in business some shortfalls are inevitable. The cases of fraud in the crowd-funding field are enormous. There have been different cases on the internet for the production of counterfeit goods and services from the borrowing companies. The case also extends to the lending companies whose primary aim is to provide fake services to entrepreneurs, and later not funding their projects. The projects also consume a lot of time with very minimal possibilities for success (Schwienbacher & Larralde 2010). The procedure of creating a campaign is also very tiresome with various factors to consider. The possibility of failure of the project and the initial cost of the project such as application and maintenance fee of the project. There is the case of the heavy competition on the internet between projects; it is evident that the internet has a better platform for learning and creating better projects, the most surprising fact that all these projects need funding hence creating room for healthy competition and creating space for better-presented projects to be victors (Weinstein 2013).

To conclude, building a business and expecting it to flourish on the internet based platform is not an easy task, but with the right tools and better information input, there is a better chance for the entrepreneurs to flourish on the market niche. Crowd-funding being a new platform it is easy to understand and also very dangerous because of fraud. The new platform creates a better means of receiving funds and also helps the borrowers attain special support from the lenders. The most important part of crowd-funding is the use of internet resources to produce better and more selling products. The loaning companies usually have better strategies once they identify promising products and in turn, they purchase these products for more than the customers. It is a fact that lending companies are usually sharp and in the case of equity platform there are no chances of risking on businesses that cannot produce quality products. The platform of the community majorly focuses on the society’s well-being and usually strategies in building the morals and ethics of the community.

Reference list

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