Top of mind amongst small and medium businesses alike, most particularly those just getting off the ground, is the often vexing question: what is the best way to raise money and secure funding?

 

Beyond the traditional means, recently new options have emerged and are growing as both  viable, and promising answers to that question in their own right.

 

Both social lending and crowd funding enables individuals, non-profit organisations and entrepreneurs to sidestep banks and turn to alternative, online sources for investment in projects and ideas. With social lending, businesses and individuals are thus able to lend and borrow money at more competitive interest rates than they could get from the banks and without the excessive charges and fees.

 

 

Sean Emery, the co-founder and CEO of RainFin, explained that this new person-to-person model of lending directly links people and groups who have cash to invest, with people and small businesses who want to borrow money. While currently focused on a personal lending product, RainFin will be launching its own SME focused Supply Chain Funding marketplace later this year, which will give SMEs the opportunity to borrow money to fund working capital.

 

Crowd funding portals, such as Kickstarter.com, Indiegogo.com, and Evly.com, enable people and small businesses to apply for funding, whereby they can raise money from the public by offering a variety of returns to potential funders.

 

These range from something as small as promising them some form of acknowledgement or a share in the company’s profits. However, Emery notes that in most crowd funding campaigns, the funders are promised the company’s product in return for their money.

 

 

According to two local entrepreneurs who have jumped into the alternative funding arena, South African entrepreneurs Ben Botes and Lourie Nel, with their online funding portal, StartMe.co.za, the biggest issue facing entrepreneurs of start-up businesses today is funding their ideas to fruition.

 

“Approaching banks requires that the entrepreneur follows certain eligibility criteria such as credit worthiness. This can lead to delays in getting the business off the ground and the potential of losing first-mover advantage,” elaborated Botes.

 

He further asserted though, with StartMe, the entrepreneur can raise money in “just a few months” to expand their business or start their business from the crowd. Crowd funding also offers a soft benefit, enabling small, start-up companies to generate some much needed publicity for their company, and see how well received their product may be before going to market, while garnering the funding to move forward.

 

 

Businesses that may be inclined to dismiss crowd funding as being relegated to ‘creative types’ or entrepreneurs who have small scale projects in mind, need only look at the success of Ouya to dispel their disbelief. The Android console developer managed to raise in excess of $5.7 million (R46.5 million) in less than a month, from some 45 000 investors on Kickstarter.

 

Additionally, crowd funding further opens a door for businesses that bring to market new, untested innovations, often frowned upon by banks when they consider the feasibility of granting a loan.

 

 

Only cementing the argument for crowd funding’s viability is proof that the trend is no ‘flash in the pan.’ According to Crowdsourcing.org, the emergence of crowd funding platforms (CFPs) around the globe is accelerating. By the end of 2012 there are expected to be more than 530 platforms, an increase of 60% since last year.

 

While the US leads the trend, with 191 CFPs, this growing funding alternative is also booming in Europe, with 44 CFPs in Britain and more than 100 in existence across the rest of the Eurozone. Additionally, the site predicts that the amount of money raised by international crowd funding projects during 2012 will reach $2.8 billion (about R22.5 billion) up 91% since 2011.