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Small Business

Why Your Local Bank Is Terrified of Crowdfunding

As crowdfunding becomes more mainstream, more entrepreneurs see it as an alternative to bank loans. Banks are none too pleased.

In 2012, crowdfunding portals helped small business owners and individuals raise about $2.7 billion. By the end of this year, that figure could nearly double, according to Massolution, which tracks the market.

I’ve written about crowdfunding extensively, mostly from the point of view of entrepreneurs, who view crowdfunding as a cheaper way to finance their business over traditional bank loans. But little has been written from the perspective of the banks, which are beginning to view crowdfunding’s rise as a potential threat to their core business.

Nathaniel Karp, the chief economist for BBVA Compass, a midsized bank headquartered in Alabama, issued a report last week that voiced some of those concerns–as well as potential solutions for banks.

“There is a real risk that banks stop being the primary source for personal and small businesses loans,” writes Karp in BBVA’s recently released economic outlook. “Therefore, it is important that commercial banks devote resources to understand and potentially benefit from this kind of disruptive technologies.”

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