According to a recent Manta survey, only two percent of businesses have tried crowdfunding to back them. That's a pretty surprising number, considering the survey also found that 69 percent of respondents think the lending environment hasn't improved in the last year.
But if the majority of small-business owners think the lending well is dry, why aren't more of them exploring alternative funding options like crowdsourced backing? The Manta survey offers some insight...
- 30 percent of respondents are uncertain of the risks involved with crowdfunding.
- 20 percent don't understand the technology that funding sites use.
- 14 percent simply don't trust crowdfunding sites.
- 7 percent think crowdfunding sites are too complicated.
Meanwhile, 70 percent of respondents have sought traditional banking loans. (And if that's your scene, read about how the SBA is trying to make small business borrowing easier in "SBA's LINC Connects Small Businesses with Potential Lenders.")
If the fear of the unknown is keeping you from exploring alternative options to get your business backed, let this be an introduction to what crowdfunding is and how it can benefit your business.
What Is Crowdfunding?
Crowdfunding is the method of raising money for a project or venture through many individual investors – friends, family, customers, fans, etc. – usually via the Internet. Several sites have cropped up to simplify this process, such as…
The nice thing about crowdfunding is that you don't have to worry about paying back loans or interest like you would with traditional lending. The only "payback" required is that you fulfill the campaign's promised rewards to backers (if applicable). Crowdfunding also gets your community involved, and a successful campaign can generate a lot of buzz around your business's launch or newest product.
Tips for Crowdfunding Your Business
There are tons of crowdfunding platforms to choose from, but it's important to do your research before settling on a site. You'll want to know…
- The fees. The top sites take a percentage of your raised funds (usually four percent of the fund for a successful project) plus credit card processing fees. Factor this figure into your goal.
- The goals. Some sites let you access your funds even if you don't reach your goal (e.g., Indiegogo). However, you may be assessed a higher fee if that's the case. Regardless, be sure to pick a reasonable goal for your campaign – meeting your goal shows that people want to see you succeed.
- The restrictions. Some sites only allow US residents to use the platform (e.g., Kickstarter). Others won't allow personal fundraising (e.g., for medical expenses). Lastly, some sites can only be used for certain projects (e.g., raising funds for a charitable cause).
- The rewards. Kickstarter only requires rewards to be fulfilled if the campaign is successful. Other sites may not require you to offer rewards or perks for backers. However, offering rewards is a good way to get people you don't personally know to back your campaign.
Once you've done your research and found the site that fits your needs, it's time to build a campaign. Most of the major crowdfunding sites offer plenty of pointers for building a successful campaign, so be sure to read the site's FAQ section.
You want your campaign story to strike an emotional chord with backers, so take time writing the content. Make it personal and compelling. Though you want to hit on the technical details of your project and how you plan to use the funds to launch or grow your business, you also want to engage the audience and make them feel a personal stake in your success.
Lastly, don't rely on the platform to market your campaign for you. Spread the word across all your social media channels and highlight the cool perks that come with backing your campaign and what backers can look forward to once your campaign reaches its goal.