Crowdfunding “crowding out” your bank?

According to a recent article by Erik Markowitz, “Crowdfunding portals helped small business owners and individual raise about $2.7 billion in 2012.  The article reports that “There is a real risk that banks stop being the primary source for personal and small business loans.”

What is crowdfunding?  You post your idea/product/charity/software/invention onto crowdfunding sites, and people support you by sending in support (money) in exchange for something.  The “something” can be discounts, products or services;  in the case of charitable crowdfunding they simply get a feeling of helping out.  Most crowdfunding does not provide any equity in the company, as that would be regulated by the SEC.

Banks work with your money and want you locked in for a set period of time so they know how long they have your interest payments for.   They have never been big on putting money into a near-term short profitability venture with long term potential.

Markowitz finishes the article with this paragraph:

“Portals like Indiegogo and Kickstarter have created strong platforms for launching successful, meaningful projects, while sites like LendingClub have established a recognizable brand for peer-to-peer lending. One of the major attractions of using these crowdfunding portals in the first place is the promotional element: Create a buzzworthy campaign and you can reach your funding goal in a matter of days or weeks, not to mention garner a loyal base of fans. For that reason, entrepreneurs will stick with major crowdfunding “brands” they know.”