Just as social media has changed the way we stay in touch, technology is changing how we handle money.
And one of the areas that’s seen a substantial amount of change in recent history is the availability of alternative financing like crowdfunding or peer-to-peer lending.
But what do these types of financing really mean and how do they differ from more traditional financing?
Shedding a little light on the traditional vs. alternative debate, as well as clearing up possible misconceptions for both options is Rod Cachola from HawaiiUSA Federal Credit Union.
“Let’s start with crowdfunding. As you mentioned, a lot of us have heard of crowdfunding through social media or on the news because of things like GoFundMe campaigns being started to help individuals facing difficult times.
That’s not the only reason for crowdfunding, of course, but it’s definitely become one of the more prevalent ones.
The way crowdfunding works at its very simplest is the collection of money from a large number of individuals to finance a project, venture, or in the case of some of these GoFundMe campaigns, recovery efforts and/or treatment.
One of the strengths of crowdfunding is how it makes use of the easy accessibility of people through social media and crowdfunding websites.
And in the case of businesses, this huge prospective net of resources is able to bring with it investors and entrepreneurs, together, whom funds can be raised beyond the traditional circle of owners and venture capitalists.
Crowdfunding has created the opportunity for entrepreneurs to raise hundreds, thousands, and in some instances even millions of dollars from anyone with money ready to invest.
It’s provided an open forum for anyone with an idea to pitch it in front of waiting investors hopefully eager to jump onboard to that next can’t miss idea from the get go.
As for peer-to-peer lending, it’s a method of debt financing that allows someone to borrow or lend money without the use of the traditional bank or credit union system.
Borrowers take loans from individual investors who are willing to lend their own money for a contracted interest rate.
And in the case of a single lender not being able to fund the entire amount desired, the remaining portion of the loan may be funded by one or more investors in the peer lending marketplace.”
There are a couple of different types of alternative financing options, Cachola also explains which are most popular with individuals.
“As you’d expect with something on the rise, there definitely are more than a few benefits that come with certain aspects of alternative funding. For example, many of these sites boast quick and easy account creation and application processes. And given your unique financial situation, you may find that some of these alternative financing options may have lower loan rates than certain traditional methods of borrowing like a personal loan or credit card. And bringing back up that social aspect of things, getting to see individual, some probably friends and family, contribute to your cause can be quite the confidence builder.”
With every positive there typically are issues to consider that may detract from the benefits.
There are important details to keep in mind before deciding on going with an alternative financing route.
“Although alternative financing may serve you well and may be able to provide the solutions to your borrowing needs, there are definitely things to keep in mind prior deciding to forego consideration of traditional financing available to most through their credit union or bank.
These are things, of course, like personal loans, utilizing credit cards or possible a home equity line of credit (HELOC), or if the financial need is significant, maybe even a mortgage.
And depending on your relationship with your financial institution, you may opt to just stick with a tried and true traditional method.
Also, what can’t be overlooked is customer service.
As mentioned earlier, some of these alternative financing websites maybe fast and simple when it comes to applying for a loan, but those positives can quickly turn to frustrations depending on the lack of satisfactory customer service.
Alternative financing options may remove the middleman from the borrowing or raising capital process, but it also involves more time, effort and risk than the general brick-and-mortar lending scenarios.
And specifically with peer-to-peer lending, it may possibly even complicate matters since a loan may have multiple source, which would each have monthly repayment needing to be made to their respective sources.
Getting access to funds can also be a tricky process and qualifications to even gain access to funds might also keep you out of luck or cause you to face high interest rates.
That’s why when things aren’t going as planned or when you’re looking for an answer to a question, having that proper personal touch and connection can make all the difference.
And working with a trusted financial institution where you can contact them through multiple channels—in-person, over the phone, and digitally— allows that level of comfort and security.
For example, at HawaiiUSA the idea of service is an integral part our mission to help our members choose wisely to make their financial dreams come true.
Whether it’s questions about the financing process or perhaps it’s questions on trying to grow their financial wellness, staying easily accessible is one way we maintain our Life matters commitment.
So, before you make decision on how you’re looking to fund your borrowing needs, be sure to weigh what pros and cons really matter to you.”
If you’d like to know more about Traditional or Alternative Financing, visit a Hawaii USA FCU near you.