Would a complete stranger fund your business?

By Helen Gradwell

In the past, if you wanted to start your own business, you might have popped into your bank for a loan or maxed out your credit cards. But banks are now more reluctant to lend money to start-ups - lending to businesses has been shrinking since the end of 2008, according to the BBC.

So are there any alternatives to a bank loan? Well, there's a new way to fund a fledgling business: crowdfunding.

The basic premise of crowdfunding is that you put your business proposal or idea on a website - a bit like a sales pitch - and ask total strangers to fund it if they like it. The idea originated in the USA in 2008, to fund creative projects like band tours, album recordings and films that otherwise wouldn't have got any funding at all.

One crowdfunding website in the UK is Crowdcube. The minimum investment you can make is £10 - and it allows start-ups to sell shares too. 24 businesses have raised over £3.9 million on Crowdcube. 10% of start-ups on Crowdcube meet their funding goals - but if they don't they're not allowed to keep any of the money in an 'all or nothing' approach.

Darren Westlake of Crowdcube said: "It's designed to open people's eyes to the opportunities of investing in small companies which the man on the street may not have normally thought about".

Crowdfunding is not without its risks, however. The Financial Services Authority has published some guidance - click here to read it.

Tags: loans, crowdfunding, FSA

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