crowd funding and lending

sysprogrammer

Hi All,

Our business requires a piece of equipment costing up to 10k. This would enable us to expand our current sales volume and repay the capital cost within 36 months.

We have no debts. no outstanding loans and some reserve in savings too.

Before I approach my bank and/or Credit Union , I wanted to ask of people's experience with crowd funding and micro finance lenders.

Are these avenues worth pursuing for such an amount ?

Is there any advantage to these crowd fund sites ?

We have not been refused credit with our usual loan provider, I'm exploring options before seeking the loan.

Any site recommendation or experiences in this area is greatly appreciated

Thanks in advance,
Sysprog

antoinolachtnai

It is basically about the interest rate. You want to get the cheapest money.

Typically the cheapest money is from the bank.

Some financing is only available if you have been refused by the bank.

I can't see any good reason why you would be refused by the bank.

mickmac76

I don't have any experience with running a business but I have loaned money using crowd funding on linked finance over the past few years. Getting a loan of 10k should be quite straight forward. I think the interest rate is fixed at 9.6% for 36 months. As the above poster says it's the interest rate that matters and I've no idea what the banks charge. See www.linkedfinance.com for the crowd funding website.

meijin

call your bank first

if you qualify, ask about SBCI loan (4.5%), more info at http://sbci.gov.ie/

sysprogrammer

Morning , and thanks for taking the time to reply , I do appreciate it.

The main reason we haven't gone to our bank first , is that we provide tours ,and accommodation throughout Ireland.

Our offerings vary in price from €30 - €500 and I have seen on some funding sites that the companies can pay-back investors by use of gift packs.

So what I am getting at is, should we look for a loan or kick-start funding.

eg : for our campaign or kickstarter , if you invest €100 then you get a weekend away to the value of €200.
Given that it costs us less to provide you with €200 value of tours and accommodation, than it would do to repay you using cash in our account (which we have paid tax on already I may add).

I think what I am asking is would you go with FundME/Kickstarter route or go for a straight up finance/loan ?

Any opinion is welcome and I don't feel that there is a wrong answer to this.
Cheers,
Sysprog

antoinolachtnai

Try and get finance from the bank for at least part of the money, if it is possible at all.

It is just less hassle, if nothing else. If you pay the money back, the bank will come and shake your hand because they will be anxious to lend you more money. The crowdfunders will have forgotten who you are.

If there is a way to get customers to pay up-front for services, and then use the money to fund things, that is fine. But make sure your model is well worked out and that you manage the cash very carefully. And it may still be cheaper to borrow from the bank than to discount like this.

sysprogrammer

MFI Ireland just called (after I emailed them) to offer 6.8% Interest.
Rather High.

antoinolachtnai

You think it is expensive? it is a lot cheaper than the other options you have mentioned, when all costs are taken into account.

Get a firm offer from MFI and then go to the bank, that's what I'd suggest.

sysprogrammer

very good point Anthony, I see the fee's charged by some site's who are supposed to be helping.

The bank does seem the best course of option, I'll back it up with an email from MFI.

Thank you.

mahamageehad

I'm quite active in the crowdfunding scene so I can see the appeal of going that way. I would point out though that there are numerous things to be aware of:

- Kickstarter/IGG etc all take a cut of the money. Make sure you're factoring this in.
- Expect to lose about 5-10% of pledged money due to card failure, change of mind etc.
- Expect to spend some money advertising the campaign- with Kickstarter if you don't make the funding goal, you don't get anything. IGG is different with a flexible funding option but that has its own difficulties.
- Have a plan in place for if you go viral- I've seen promising projects fail because they funded 1000% over goal and couldn't scale that quick.
- If you do go the route, put money aside to get a decent video made for the campaign page. Don't underestimate the time you'll need to spend on creating the page, monitoring comments, writing updates etc.

For a small funding amount, particularly one where you seem to be buying an asset rather than developing something new, a bank loan may be a better bet. Happy to talk more about crowdfunding though if you're interested.

sysprogrammer

wow, thanks Mahamageehad, this is exactly the kind of response I was looking for when I first posted my question,

I wanted an overview of the crowd funding sites, and I can see that we all agree with Antoinolachtnai in that a bank is the best route to finance in this scenario.

Thanks everyone ,I think we have our answer.

Cheers,
Sys

antoinolachtnai

By the way, don't show the bank your letter from MFI, at least not at the outset. Tell them you are looking at options and have one firm possibility and want to see what they can offer, because you've done business with them before.

If you could borrow more money could you grow your business faster?

sysprogrammer

Hi Antoin,

"If you could borrow more money could you grow your business faster"

In this particular case I am looking to purchase a 9 seat vehicle to compliment the existing minibus and coach fleet.
I have a number of future bookings to help offset costs. 50 paid guests = 10K .

I'm going to ring around to see what interest rate I can get.

Will report back.

Cheers,
Sysprog

antoinolachtnai

Well, if you invested in marketing (or something) could you make it worth your while to buy a slightly larger vehicle, or the same size vehicle, but keep it full for more of the year, or a vehicle with a better finish that would allow you to charge a slightly higher price. If you can invest in anything to reduce the labour cost, that would be worthwhile too. Safety measures might help too.

sysprogrammer

some excellent insight Antoin.

I am particularly choosing a 9 seat vehicle so as to avail of the licencing requirements in the Rep of Ireland.

All drivers with a full B licence may apply for their SPSV. Whereas with the Minibus course, I have at least €2,000 in training and fee's for each driver.

I am going to use this 9 seater as a shuttle service to our larger coaches (eg Hotel pickup to Busaras to join our Coach tour).

For marketing this year, I have finally given up the gauntlet and engaged the services of an outside whizz-kid. when I see the quality of adverts that some people are putting out I know I should stick to the day job.

Lastly, I have posted over in the motors forum to seek advice of how best to trade/sell and buy this new vehicle. Boards.ie is still a fantastic resource for me, full of local knowledge and experience.

Thanks All,
Sysprog

antoinolachtnai

That sounds like a sensible strategy.

I am not trying to suggest you borrow more money than you need, but if there are opportunities for expansion, you need to think about taking them. Maybe not right away, but maybe for next season. You don't want to stop expanding just because you've run out of cash (which will happen eventually if you continue to expand and don't have access to capital).

Bear in mind the bigger picture as you go around the different sources. Getting inexpensive money is important, but it is important to have someone who will be with you for the longer run too.

CelticRambler

sysprogrammer wrote: »

eg : for our campaign or kickstarter , if you invest €100 then you get a weekend away to the value of €200.
Given that it costs us less to provide you with €200 value of tours and accommodation, than it would do to repay you using cash in our account

You'd need to be careful how you handle things if you take that approach. Too much in the way of non-cash repayments will affect how healthy your annual accounts appear. Even if you've got a note in accounts explaining "yeah, but ..." it's the kind of irregularity that might cause a loan-approver (or other investor in the business) to wrinkle their brow when you're looking for bigger sums in a few years' time.

Graham

CelticRambler wrote: »

You'd need to be careful how you handle things if you take that approach. Too much in the way of non-cash repayments will affect how healthy your annual accounts appear. Even if you've got a note in accounts explaining "yeah, but ..." it's the kind of irregularity that might cause a loan-approver (or other investor in the business) to wrinkle their brow when you're looking for bigger sums in a few years' time.

It's probably not a good idea to combine any of the main 'crowd-funding' types.

1) Crowd-Funding - Kickstarter type - essentially a pre-ordering service where members of the public 'buy' goods or services prior to launch and usually at a discount.
2) Crowd-Investing - Seedrs type - members of the public buy shares in a business.
3) Crowd-Lending - Linked Finance type - members of the public loan money to a business

The only exception I can see working out is a small discount for participants in 2) or 3) and only if the goods/services are still profitable with the discount.

sysprogrammer

@CelticRambler - I agree , and some grant applications are in our future , so I would rather keep the books whistle clean.

@Graham - Thanks , you are confirming what we kinda thought beforehand. I think the best way to go in this instance is a bank loan.

I'll update this post in the future to tell how we get on, and really , thanks again for taking the time to reply, I have received excellent advice here.

Have a Great Weekend Everyone,
Sysprog