By Adam Robert
A few things need to be clarified regarding the meaning of the phrase “alternative funding services.” When we refer to alternative funding services, we are generally referring to Business capital loans efforts that do not result in the formation of a legal entity, like a limited liability company. When referring to articles 4 and 5 of the crowdfunding act, we are typically talking about the statutory requirements that must be met by all crowdfunding projects. Both of these articles contain a list of potential risks associated with certain types of Crowdfunding projects.
The key feature of this provision of the crowdfunding act is that, unlike many state laws, there is no requirement that a crowdfunding project must include a formal entity to satisfy article 4. The reason for this is that many experts believe that there is no need for a legal entity to fulfill the purpose of the act. For this reason, many Crowdfunding participants have chosen not to form any formal entity and have instead opted to use a PayPal account or some other method of payment that effectively acts as an account holder.
A second provision of the crowdfunding act, called the “elements” part, requires project creators to provide notice that will satisfy the five elements necessary to establish a valid business proposition. This notification ensures that any person who is reading the project is aware of the fact that the project is a real one and not a scam.
The five elements are notice, identification of the problem, obtaining financing, and providing a working plan for fixing the problem. If a project fails to satisfy any one of these elements, then it will be considered incomplete and will not be eligible for Crowdfunding. If, on the other hand, a project satisfies all five elements, then it will most likely be considered valid and will be allowed to proceed.
Finally, if a crowdfunding project is created for a legitimate business, then it is most likely going to be eligible for both a traditional loan and an alternative financing service. Traditional loans are typically based on creditworthiness, while non-traditional financing sources typically require a down payment and other factors.
Crowdfunding allows small businesses to receive both conventional financings in the form of traditional loans and alternative financing from third parties. This is very beneficial for the small businesses that do not wish to apply for conventional financing but do not wish to risk their credit score or other important aspects of their business.
Crowdfunding is beneficial for both entrepreneurs and lenders. Because it allows innovative business owners to try out their ideas before they launch them into the public market, it provides a valuable testing ground for new concepts and products. It also helps early-stage business owners get their products and services to market faster than otherwise possible and to test market their market viability before moving on to larger funding sources.
However, this benefit to the small business owners comes at a cost; particularly in the form of increased fees for borrowers. In some cases, these fees may surpass the benefits, especially when business owners fail to make payments on time.
