Collective Financing Marketplaces: Alternative to Bank Funding in Early Stages of Entrepreneurship

Abstract

The lack of funding often becomes a crucial factor of development in early stages of entrepreneurship, despite the existence of innovative ideas and properly developed business plans. Although start-ups objectively should not be target clients of the banks, the most part of credit institutions publicly promote special loans and support programs for new entrepreneurs. The aim of the research is to study the real feasibility of start-ups to attract bank funds and compare with alternative sources such as crowdfunding and peer-to-peer (P2P) landing. To verify the possibility to attract bank funding the control experiments were carried out in several Latvia’s financial Institutions. It was shown that bank funding in start-up phase of entrepreneurship in practice is not likely possible. The main reasons of rejections were identified. Analysis of different forms and models of collective financing marketplaces showed that crowdfunding and peer-to-peer lending becomes a good alternative to traditional sources of funding. A survey of new entrepreneurs has been done to detect the main problems of funding. The lack of sufficient knowledge of new entrepreneurs about potential sources of financing, including crowdfunding and P2P landing, was found. The comparison of collective financing platforms and formal sources of funding in early stages of entrepreneurship was done.