Success Factors in Reward based and Equity based Crowdfunding in Finland

Master’s Thesis 
8 
2.1. Types of Funding 
Entrepreneurs can fund their ventures themselves with the help of friends and family. 
Due to the substantial capital requirements of most businesses, this is not a viable 
long-term funding option for the large majority. There are several external funding 
options for businesses in need of more funds. In this chapter the author will discuss 
four such alternatives: government grants, bank loans, venture capitalists and business 
angels. 
2.1.1. Government Grants 
Ventures can also look for funding through government grants. These are usually pro-
vided for non-profit organizations and ventures pursuing a good cause. For example 
the US government rarely provides grants to small businesses, because the grants are 
financed by tax dollars
2
. The European Union on the other hand does provide funding 
for both non-profit and for-profit businesses, for example through agricultural in-
come-support
3
. Unfortunately for entrepreneurs, government support for non-profits 
has decreased and less lump-sum government grants are handed out. Now non-profit 
managers are looking to “make up” for this decrease by expanding their revenue base 
and increasing their fundraising activities. (
Rose-Ackerman, 1987)
2.1.2. Bank Loans 
Bank loans are one option businesses have for obtaining more funding. As with any 
loans, bank loans are given for a certain period of time with an agreed upon interest 
rate
4
. The banks’ primary concern is whether or not the loan will be paid – thus they 
are very interested in the finances of the business, for example cash flows and margins 
(Mason and Stark, 2004). 
According to Mason and Stark (2004) banks are very distinct in their assessment of a 
business plan. Banks compare business plans against market averages and demand 
explanations for significant deviations. The approach banks have in assessing risk 
2
https://www.usa.gov/grants
3
http://europa.eu/about-eu/funding-grants/
4
http://www.merriam-webster.com/dictionary/loan

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