Say that you’re a small California business, or perhaps an entity that is not yet firmly established or much more than a glimmer in the eye of a smart entrepreneur.
You’re going to need funding.
And, of course, the obvious question relevant to that is this: Where are you going to get it?
One or more of the banks right down the street might readily warm to your business idea or proposed expansion, but that traditional avenue of financing is well known for the many hoops and hurdles it can present for businesses that are not already proven players and possessed of years of financial records illustrating past success.
There have always been alternative money sources, of course, but many of those are decidedly not mainstream and will charge you a premium for doing business.
What if you can get your ideas before legions of investors who can readily peruse your business particulars online and then finance you without having to jump through hoops themselves? Perhaps they would be quite willing to finance — in part or in whole — your efforts for an equity piece of your business, which they could cash in on for a profit in the event you prosper.
Small investors were in fact just given approval by regulatory authorities to supply capital up to $1 million to small companies seeking cash infusions through participation in what is called “crowdfunding portals” operating on the Internet.
You want to grow. They want to participate and share the profits in a small and young company. Until Monday of this week, they were largely unable to do so except by investing indirectly though larger lenders.
The rationale behind crowdfunding is to make start-up capital more accessible and open the doors for wider participation by small investors.
The bottom line, as noted by a recent media on this newly emerging financing vehicle, is that crowdfunding “promises to expand the world of options for raising capital.”
That will likely be appealing to many business actors and investors.