When comparing peer-to-peer fundraising with crowdfunding, many people hunt for information. The terms “crowdfunding” and “peer-to-peer fundraising” are unclear, making the subject difficult to understand. That results from the fact that different industries have varying definitions of “crowdfunding” and “peer-to-peer fundraising”. Even within a single industry, various groups may interpret them differently!
That may also apply to the nonprofit sector. However, the market has settled on two definitions for each sort of fundraising. Once you are aware of those, selecting a style that works for you will be a lot simpler.
What is Crowdfunding?
Much like it sounds, crowdfunding involves soliciting contributions from many people. These people typically give you money in exchange for payment of some kind.
There are numerous crowdfunding tools available to make this procedure simple. Popular ones like Kickstarter, GoFundMe, and Patreon are ones you’ve heard of. However, there are crowdsourcing platforms for a variety of specialized needs. For instance, iFundWomen offers crowdfunding particularly for, you guessed it, women-owned businesses.
There are several platforms, and there are various crowdfunding models. Crowdfunding is typically categorized according to the form of payment.
Reward crowdfunding is providing your backer’s goods, merchandise, or recognition. However, equity crowdfunding occurs when backers receive shares in your business (essentially partial ownership).
Equity crowdfunding typically works better for a business as a whole, whereas reward crowdfunding generally works best for specific items and projects..
Types of Crowdfunding
Four alternative crowdsourcing models exist:
What is peer-to-peer lending?
Peer-to-peer lending is a particular form of company finance wherein private investors, as opposed to conventional banks or credit unions, fund small enterprises.
Business loans or lines of credit are the most common forms of peer-to-peer financing. The money is being contributed by individual investors, although they often use a lending platform to do it (like Funding Circle or StreetShares). These sites frequently combine funds from many P2P investors to offer business loans.
The majority of the time, thanks to P2P lending networks, the borrower and the investor never actually speak. As a middleman, the loan platform operates. So, using the platform, the borrower applies, is funded, and then repays the loan.
Because P2P lenders typically have fewer borrower criteria, small business owners frequently favour P2P lending over traditional loans (such as credit score and revenue requirements). P2P lenders, on the other hand, frequently charge cheaper interest rates than many alternative lenders.
To put it differently, P2P lending platforms act as a happy medium between banks and instant online lenders (though specific rates and requirements will depend on the P2P lender you go with).
Types of peer-to-peer lending
There are four types of peer-to-peer lending. They include:
- Personal Loans
- Business Loans
- Student/Educational Loans
- State Restrictions.
Crowdfunding vs Peer-to-Peer: Insight
Crowdfunding is the process of funding a project, campaign, or program by obtaining a large number of smaller gifts from numerous individuals instead of depending on a small number of large donations.
Fundraising using peer-to-peer networks is crowdfunding on steroids. You enlist people to solicit financial support for your cause from their family and friends. Like in crowdfunding, many donors make little contributions. However, with peer-to-peer fundraising, each member has a page similar to crowdfunding. Typically, peer-to-peer fundraising takes place in conjunction with a walk or run.
Assume you wish to raise money to build a playground. A single fundraising page with a predetermined objective would be part of a crowdfunding campaign. Each participant in a peer-to-peer fundraiser would have their fundraising page and set of objectives.
Crowdfunding vs Peer-to-Peer: Which Should I Use?
Peer-to-peer fundraising and crowdfunding are both practical approaches to raising money for a particular project or cause. Choosing the best fundraising strategy for you will largely depend on the resources your organization has at its disposal!
Peer-to-peer fundraising is more complicated than crowdfunding. You just need one page, and creating and promoting it to your donors and followers will take up most of your time. Additionally, you should urge your audience to distribute your form. The more donors you’ll reach depends on how much your page is seen! You’ll want to make sure to spread your crowdfunding form aggressively through social media and email.
The complexity of peer-to-peer fundraising is higher. You must prepare for finding and preparing participants because it depends on recruiting participants who raise money for you. They will also want continuing assistance as they raise money for you. While peer-to-peer fundraising takes more effort and preparation than a crowdfunding campaign, it has the potential to attract more attention and publicity. Additionally, you are exposed to a larger audience when fundraisers share with friends and family.
Crowdfunding is the right choice if you:
- Set a modest fundraising target for a particular cause or campaign.
- Have a minimal staff
- are prepared to promote your campaign actively across all of your communication platforms.
- Have a responsive following that will spread the word about your form
- Want to raise money with the current set of tools
Peer-to-peer fundraising would be a great choice if you:
- Have enough time to organize and carry out a significant fundraising event or campaign
- Have enough personnel to support a large number of fundraisers
- Assemble a group of willing participants who are accustomed to using internet resources
- Accept the addition of a new tool to your toolbox for fundraising
- Able to organize an accompanying event.
Crowdfunding vs Peer-to-Peer: Where Do I Start?
You’ll conduct your campaign similarly whether you choose a straightforward crowdfunding campaign or a more intricate peer-to-peer fundraising effort.
Establish your objective first, then construct your event page. You must create participant and team pages if you’re running a peer-to-peer campaign.
Next, ask some devoted contributors and volunteers to contribute and to get involved. By distributing your form, they’ll aid in creating momentum. You can start your campaign by asking them to spread the news in advance.
Prepare to promote your campaign on your website, social media accounts, and website. Spread the word, as both methods of fundraising depend on being very visible to lots of donors!
Make sure to thank donors in person by following up. You should also express your gratitude to your participants for all they did for you throughout peer-to-peer campaigns.
It might be challenging to negotiate the peer-to-peer vs. crowdfunding argument! Both methods of fundraising are comparable and can be a lot of fun to carry out. But you may make a choice much more quickly once you are aware of the benefits and criteria of each.
Is crowdfunding and peer-to-peer the same?
The distinction: Peer-to-peer fundraising focuses on people who raise money for the cause via customized giving pages. Through a single campaign page, donations made through crowdfunding are more centrally managed.
Is P2P a form of crowdfunding?
Equity Crowdfunding (ECF) and peer-to-peer lending are the two relevant forms of crowdfunding that have investors giddy (P2P). ECF is simply a fundraising campaign in which donors contribute to a business (often an SME) in exchange for stock in the business.
How does P2P and crowdfunding work?
With crowdfunding, a large number of unrelated people join together to pool their resources and invest in a project; in doing so, they each receive a portion of the project. In contrast, with peer-to-peer lending, investors simply make a little loan to the borrower in exchange for interest.
P2P lending and crowdfunding are both great options for raising capital for your small business. However, they operate very differently, even though they both allow you to accept funds from private investors.
Because it is campaign-driven, crowdfunding is most effective for companies that offer items. As long as they can meet the basic borrower standards, P2P lending, on the other hand, works well for service-based enterprises and others.