If you’re ready to start or grow your small business, where will the money come from? Whether you’re beginning your journey as a small business owner or are looking for money to expand, crowdfunding might be the answer.
Combining social media and the right platform, it can help you raise funds through friends, family, customers, and individual investors.
Here’s a look at crowdfunding to help you decide if it is a good fit for your small business.
What is Crowdfunding?
Crowdfunding uses online platforms to give you more power to build, showcase, and share your business ideas. In the past, you relied on your limited network of banks, angel investors, and venture capitalists. With crowdfunding, you tap into a wider audience to increase your exposure.
In exchange for their money, crowdfunding investors in your business can receive rewards, future repayment, or a share in the company.
How to Choose the Right Crowdfunding Website
All crowdfunding sites can connect you with people willing to invest in and fund your project. To pick the best one for your small business, consider these factors:
- The campaign type – Does it use reward, equity, debt, or donation crowdfunding?
- Business location – If you’re not in the U.S., will the site allow you to join?
- Fees – What funding and payment processing fees do they charge?
- Use of funds – Can you keep all funds raised, or is it an all-or-nothing model?
- Success rate – What success have other campaigns had using the platform?
The best crowdfunding site for your small business depends on your long-term goals. Before jumping into a particular platform, take a moment to consider the project you’re raising funds for and what your financial goals are.
Top 6 Crowdfunding Sites to Consider
If you’re making a consumer product like art, tech, music, games, or food, Kickstarter is a good pick. It’s the biggest name in crowdfunding with over 161,000 funded projects. The downside is it’s an all-or-nothing platform. That means you can’t keep any of the funds if you don’t reach your goal. The site suggests raising money in smaller amounts since 82% of successful campaigns raised less than $20,000.
Kickstarter is a reward crowdfunding site that doesn’t allow equity, revenue sharing, or investment opportunities.
The fees aren’t too bad. For successful projects, Kickstarter collects 5%. You’ll also pay between 3% and 5% payment processing fees.
If you have a good credit score, a personal loan through Prosper can fund your small business. The site claims they’ve helped over 900,000 people get over $14 billion in loans. They offer fixed rates, and borrowing between $2,000 and $40,000 is possible.
As a debt crowdfunding site, Prosper works well for startups or businesses struggling with cash flow.
The fees can be high, with interest rates between 7% and 36% and origination fees of 0.5% to 4.95%. But if you’re finding it hard to qualify for other financing options, Prosper might be a good choice.
LendingClub has advanced peer-to-peer lending, crowdfunding, and micro-financing. Loans up to $300,000 are crowdfunded by site investors, and you get up to five years to pay them back. If you qualify, getting the money you need can happen in just a few days.
Like Prosper, LendingClub is a debt crowdfunding site. It’s a smart choice if you’re raising money to purchase equipment, hire new employees, consolidate debt, or expand your location.
Small businesses will like the predictable fixed payments, though you’ll pay origination fees between 1.99% and 8.99%. You can opt to pay it off early without getting stuck with extra fees or penalties.
GoFundMe is great for charity projects or small businesses that are an integral part of their community. Startups rarely do well. But for medical expenses, memorials, animal causes, and nonprofits, it can be effective.
As a donation crowdfunding site, over $5 billion has been raised. It has zero funding fees for personal causes, though transaction fees to process credit and debit card payments apply.
The draw to GoFundMe is you keep what you raise even if you don’t hit your goal amount. Certain requirements apply to withdraw funds from your account. In the U.S., you must be at least 18 years old with a Social Security number, U.S.-based phone number, mailing address, and bank account.
Perfect for businesses delivering some form of entertainment, Patreon lets you get paid as you deliver content to investors. This model lets you keep whatever you raise, and can help move your business toward predictable revenue.
Patreon is a reward crowdfunding site that works well for podcasts, artists, and other creative businesses that can deliver subscription-based content.
The platform charges a flat 5% fee for creators, but only if you’re making money. You’ll also pay standard payment processing fees for debit and credit transactions.
Funding Circle is one of the best peer-to-peer sources of small business loans. It’s a great place if you need to supplement your cash flow, buy new equipment, cover a onetime cost, or hire extra staff.
As a debt crowdfunding site, it promises you’ll get a decision in as little as 24 hours. If you accept the terms, getting started on the next phase can happen quickly since your money could arrive in just five days.
With Funding Circle, your rates start at 4.99% per year. Loans start at $25,000, and you can get as much as $500,000 if you qualify. To repay, you’ll have from six months to five years with no prepayment penalties.
Crowdfunding is growing in popularity. Each platform can offer something different for you and your small business. Going with a larger site will give you more exposure, but it also comes with great competition. If you’re ready to get started, give one of these crowdfunding sites a try to see how far you can go.