Page 308 - Electronic Commerce

Social Networking, Mobile Commerce, and Online Auctions

Kiva partners with microfinance institutions that are knowledgeable about business
conditions in their parts of the world. These institutions select local individuals they
believe are good credit risks and help them post a loan request on the Kiva site. Lenders
can review the loan requests and agree to fund part (or all) of the loan amount using the
Kiva Web site. The loans, which typically range from a few hundred to a few thousand
dollars, are scheduled to be repaid within short time periods ranging from a few months to
a year.
Most of the early interest in microlending was focused on lenders in highly
developed countries and borrowers in less-developed countries because an amount of 283
money that seemed small to a rich person can be a great deal of money to someone
starting a business in a struggling economy. Although this mode of microlending
continues to be substantial around the globe, business startups in prosperous economies
are now using the technique. For example, a microlending program devoted to small
Michigan businesses began in 2014. This program, a partnership among the Michigan
Economic Development Corporation (MEDC), local community groups in the state, and
Huntington Bank, is designed to help new businesses start and existing home-based
businesses expand. Huntington Bank committed $25 million and the MEDC made
available up to $225 million to fund loans between $500 and $50,000 for businesses with
up to five employees.

Crowdfunding Sites
In addition to finding a lender who can provide funds for a business idea, entrepreneurs
can sell partial ownership in their ventures to investors. Social networking sites that
provide exactly this opportunity, called crowdfunding, include Kickstarter and IndieGoGo.
These sites allow businesses and individuals to sell equity interests in their activities to
participants around the world. Most new business owners fund their new ventures with
savings and credit card debt, then they raise capital from friends and family members.
However, few people are able to afford the risk of making large investments in new
businesses.
Crowdfunding changes the combination from one of a few people each providing a lot
of money to one of many people, each providing a small amount of money. Crowdfunding
thus reduces the investors’ individual risk but still can provide substantial total equity
funding for new ventures.
The most common type of crowdfunding today is called reward-based crowdfunding,
in which the investors pay in advance for products (or services) to be delivered when the
company makes them using the invested funds. In this version of crowdfunding, the
investors are basically customers who prepay for products, usually at a highly discounted
price.
Crowdfunding is also used by artists and charitable organizations that have a specific
project in mind. Funders learn about the project on a social media or crowdfunding site
and make contributions to help the individual or organization complete the project. These
appeals are generally for a small amount, often under $25, and the funders are rewarded
by knowing that they have contributed to a worthy project and sometimes receive an
acknowledgement.

Copyright 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.