The Intersection of Crowdfunding and Traditional Debt Financing

“Anyone who lives within their means suffers from a lack of imagination.” – Oscar Wilde via Wisebread.com

Last week I wrote about crowdfunding and the many different platforms available for funding. I decided to explore the site Lending Club. I’ve since learned, this type of funding is called person-to-person or P2P lending. Think of it as crowdfunding meets an angel investing pool. I spent some time researching their model and writing some brief instructions on the steps to become approved with Lending Club. Here’s my screencast evaluation of their financing option:

And some more in-depth info on the steps for applying with Lending Club:

Now, let’s follow the (hypothetic) steps to apply from the borrower’s perspective:

Determine your eligibility

Click on this link for a dashboard of steps to follow (with access to the electronic platform):

https://help.lendingclub.com/hc/en-us/categories/202523217-Small-Business

1. Start by exploring the “How to Apply” button
2. Check your rate
3. Choose your offer, if given
4. Watch as people invest in your loan
5. Funding is sent directly to your bank account
6. Set-up monthly auto-draft payments
7. Pay off your loan early, if wanted, with no early pay-off penalty

 

Success and Key Questions (6/30/18 Stats):

https://www.lendingclub.com/info/statistics.action

• How much does the Crowdfunding source take as a fee? Varies depending on the terms of the loan
• How long will the process take until the money arrives and can be used? About 7 days for approval and a few more days for funds to be deposited (depending on bank rules). Need to use their check-list to avoid delays.
• Restrictions? Varies depending on the terms of the loan
• Reporting requirements? Lending Club wants to see your IRS tax return and requires a 4506-T form to do so. Borrowers would report funds as part of their tax return.

 

Crowdfunding: Potato Salad and Beyond

There’s an urban legend about a guy who posted a crowdfunding cause to “help him make the best damn potato salad,” and the legend is, he made a couple of thousand dollars doing it.

I did some digging on the world wide web and was able to verify that this did occur in 2014 on the crowdfunding site Kickstarter. The guy made Zack Danger Brown didn’t just make a couple thousand, he made $55,000 just posting a prank. With the money, he threw a huge party called Potato Stock.

Imagine what you can do as an entrepreneur or philanthropist who has a real cause or really great idea for a product or business. If you aren’t sure what type of crowdfunding site is right for you, I found two great articles that might help you weigh your options.

• Quickbooks: 8 Crowdfunding Sites-Which is best for You
• GoDaddy’s Top 20 Crowdfunding sites

In doing this research, I came across a lending site that I had never heard of called Lending Club. In short, they link individuals and small business owners to investors through their platform. I’m going to be researching this one more in-depth as part of my ENT 650 coursework.

Additional Resources:

Rogers, S. (2014). Entrepreneurial Finance: Third Edition, Finance and Business Strategies for the Serious Entrepreneur. 279-294.

Raising Capital Might take More Than a Lucky Cat

“A bank is a place that will lend you money if you can prove that you don’t need it.” – Bob Hope via goodfinancetips.com

This week we are choosing topics to research that pertain to raising funds for entrepreneurial pursuits. We’ll be publishing an article in a few weeks about the topic we research, and I chose a pretty traditional form of funding to explore. My topic is “Loans & Lines of Credit (to include SBA guarantees)”.

So far, I’ve learned the Bob Hope comment about banks loaning money only to people who prove they don’t need it is entirely true. Most banks are pretty risk-averse. This explains the popularity of other non-traditional forms of funding for modern entrepreneurs; options like:

• Angel Investors
• Crowdfunding
• & Business Incubators

For entrepreneurs who have collateral to offer and/or extremely great credit, traditional loans and lines of credit can still be a good option but are usually not the only option to pursue. As I conduct more research, I’ll post the whole article on my blog to share.

In the meantime, I’d like to share a couple of thought-provoking pieces about funding.

The first is a quick bit of advice posted on Entrepreneur.com from Amy Williams, CEO at Citizens of Humanity on choosing investors wisely: https://www.entrepreneur.com/video/310046

The second is an interesting article about the story you tell when pitching a start-up to investors. It’s an HBR piece called Startups That Seek to “Disrupt” Get More Funding Than Those That Seek to “Build” by Dana Kanze and Sheena S. Iyengar.

I hope this gives you some food for thought until my next post.

Cash Flow- Sinking Ship? Let’s Hope Not.

“Beware of little expenses. A small leak will sink a great ship.”

– Benjamin Franklin via brainyquote.com

This week we are researching and writing about cash flow management. Each person in my entrepreneurial finance class has taken a cash flow topic and writing about it for the benefit of our other classmates. I chose the topic of “how to collect cash owed to your company”. Collecting cash owed to your company can be a hard task to manage. The easy solution might be to say, “why not require payment in full before products or services are delivered?” Unfortunately for many industries and businesses, cash payment up-front is simply not how business is conducted. It might be an issue of convenience, corporate billing structure, or needing to deliver upon a service before being paid in full. For many entrepreneurs, collecting cash owed has to be an integral part of daily, and at least monthly, operations.

The first step to ensuring proper and timely collection of payment is an accurate and proactive accounts receivable system. If an entrepreneur anticipates needing to bill customers for products or services rather than or in addition to point of sale transactions. Entrepreneurs should invest in a record keeping or point of sale system with built-in billing/monthly statement generation capabilities.

While I used several resources for the full report, I wanted to share a great article that I found about collecting money owed to your business. As usual, Entrepreneur magazine (and electronic content) published this great piece from John Rampton in 2017 called 6 Strategies for Dealing With Unpaid Invoices That Get You Paid Sooner.

Here are the 6 tactics:

1. Make sure you followed procedure and then follow-up politely.
2. Give discounts and charge a penalty.
3. Abandon the stiff business approach.
4. Collections, arbitration, mediation, court.
5. Contact a Business Reporting Bureau.
6. Factor them.

Make sure you click on the article for the details and some other great links to resources and definitions of some of the terms. I had never heard of “factoring” debt until I read this article.

 

Work Cited:

Rampton, J. (2017). 6 Strategies for Dealing With Unpaid Invoices That Get You Paid Sooner. Retrieved from https://www.entrepreneur.com/article/302037

Entrepreneurs, Dogs, Money, and a New Semester

“Dogs have no money. Isn’t that amazing? They’re broke their entire lives. But they get through. You know why dogs have no money? …No Pockets.” – Jerry Seinfeld

via Goodfinancialcents.com

I started a new class last week in my Masters in Entrepreneurship program at Western Carolina University. It’s a class that I was dreading a little bit. This one when I registered for it was called Advanced Entrepreneurial Finance. Now don’t get me wrong, I manage some pretty large accounts as part of my day job, and I’m the chief financial officer at home, but the thing that was psyching me out is, in my undergraduate work I took a class called “Math for Non-Math Majors.” A class with the word advanced in front of the word finance was daunting to me. Well, I’ve had a week to meditate on the syllabus, and I’m happy to report, I think I’ll be just fine. The syllabus calls this class “Entrepreneurial Funding” which seems less scary and there really isn’t anything too hard about the concept of money in and money out. The advanced concepts, as they relate to entrepreneurship seem really helpful and exciting. I’ll get to learn more about topics like:

• Updating a Chart of Accounts
• Managing Cash Flow
• Crowd Funding Strategies
• Valuing a Company
• Funding Sources
• & Harvesting-The End Game

To help inspire me, I’ve been googling entrepreneurial financial wisdom. Blogger Choncé Maddox came up with a great list of 5 Inspirational Money Quotes from Entrepreneurs on her blog Due.

So, I’m not nervous about the class anymore. All of these things make perfect conceptual sense, and as I learn more, I’m sure I’ll be even more jazzed about the prospect of helping my husband grow his business through what I learn. After all, I have two things going for me:

1. I LOVE money.
2. AND…unlike dogs, I have pockets.