The internet, and more specifically, crowdfunding, is giving small and new businesses the opportunity to raise vital business finance from places they may never have considered in the past.
It’s fair to say awareness of these industries has advanced to the point where business owners and those looking to start businesses through crowdfunding (either for debt, equity or reward) are turning to the places that ordinarily provide information on other services and asking where they can start crowdfunding.
This offers an opportunity for local authorities to position themselves as useful intermediaries in a new market, by promoting crowdfunding to its website visitors.
Including crowdfunding as a funding option on literature alongside traditional products and services like a bank loan, venture capitalists and invoice trading gives it legitimacy and moves it from the fringes of finance and into the mainstream.
In the UK, the Government and various public bodies are teaming up with crowdfunding sites to introduce their services and there are now established sites that direct enquiries to their most suitable funding provider, like Alternative Business Funding.
The next step is to get involved by linking in directly with platform providers.
The age of open source infrastructure allows for really simple integration between high traffic sites (like local authorities) and funding providers. A simple registration form on the website of a Chamber of Commerce website that feeds directly into the application area of the funding provider can make starting the process easy for the borrower. They don’t click away from the original site and the funding provider can capture the information it needs to get started.
Finally, local authorities that really want to demonstrate their commitment to the alternative finance industry can establish their own platforms to list funding applications or even lend public money to businesses alongside individual investors. As prominent establishments in their local business communities, it makes perfect sense for them to operate as the connector of growing businesses with appropriate investors.
Value and efficiency
Crowdfunding platforms allow efficient transactions to be completed. Liberum, the investment bank, recently concluded that lending money through crowdfunding platforms is ten times more efficient than traditional finance, in terms of the time it takes for a loan to be processed and the profit margin that is taken by the operator.
Using a simple platform and employing a small, but skilled team, could give public bodies an extra income stream and an opportunity for their own dormant funds to earn a higher yield than they might do in other investments.
Following these loans and equity investments, PR and marketing activity can add value for all parties. Borrowers get finance and publicity, the public body receives positive PR and appears forward-thinking, and individual investors can make investments in businesses using a trusted intermediary.
Furthermore, if local businesses use the funds well, more jobs are created, taxes received and the wealth of the local economy increases without suffering inefficiencies of other funding models.
Global banking created many opportunities for banks and consumers, but the value of local business and local interaction to communities is being realised all the time. Crowdfunding provides the technology and public bodies provide the stability and trust to make this alliance a success and keep money in the local economy.
Nick Moules is Marketing and Communications Manager at rebuildingsociety.com, a UK peer-to-peer lending platform for businesses and White Label Crowdfunding, which provides crowdfunding software to organisations across the world.