CHAPTER 19 – BUSINESS FINANCE Choosing the right source of finance A
Go to page 124 of your Activities and Accounts Book to match the financial needs of a business with suitable sources of finance.
CROWDFUNDING
Crowdfunding is a relatively new way for a business to raise long-term finance without approaching a financial institution. It involves raising small amounts of money from a large number of people via online platforms.
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Crowdfunding involves raising small amounts of money from a large number of people via online platforms to finance a business or project.
There are three main types of crowdfunding:
1. Donation based 2. Lending based 3. Equity based.
Donation-based Crowdfunding
Donation-based crowdfunding involves raising funds for causes (such as charities, disaster relief and medical bills) or creative projects (such as films, books and art). There is no financial return for the contributor, although they may receive non-money rewards (such as an invitation to the premiere of a funded film). For example, the GlobalGiving crowdfunding site is used by not-for-profit organisations all over the world to raise money for relief.
Lending-based Crowdfunding
KNOW? Irish food
Did You
company Lolly & Cooks used Linked Finance to open a new café in Dublin.
In lending-based crowdfunding, people lend money to a business in return for repayment and interest on their investment. It is also known as peer-to-peer lending. For example, Linked Finance allows anyone over 18 with an EU bank account to become an investor in the business opportunities listed on its site.
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An investor is a person who provides a business with money in return for financial gain.
Equity-based Crowdfunding
Equity-based crowdfunding allows people to become part owners of a business by trading their own money for shares (equity) in the business. They will then receive a return on their investment. For example, Seedrs allows people in Europe to invest in start-up businesses in return for a portion of the businesses’ equity.
