4 Types of Crowdfunding You Can Consider For Your Small Business

Crowdfunding is a way of raising capital through the combined effort of friends, acquaintances, family, customers, and individual investors. This method taps into the combined efforts of a large pool of individuals—fundamentally online via social media and other crowdfunding platforms—and leverages their channels for larger reach and publicity.

Crowdfunding is making a lot of press recently and it should. It’s transforming into a trusted means to accumulate money for an idea, product, or even putting up an entire business.

Small business owners now have crowdfunding as a financing option for their business. Crowdfunding can be a compliment or replacement for traditional manners of financing.

So, if you have an idea for putting up a small business, here are the 4 basic types of crowdfunding you can consider.

Rewards-Based Crowdfunding

If you’ve heard about Kickstarter or Indiegogo then you should have an idea of how rewards-based crowdfunding works. In this system, an entrepreneur builds a crowdfunding campaign to raise money for a product. Grantors to these types of campaigns then get to pre-purchase the product at favorable prices.

In this type of crowdfunding, you’re not selling part of your business but rather you are bringing in early supporters and customers.

Equity Crowdfunding

To finance a business idea to operate and grow, small business owners have typically leaned to external investors. In this type of crowdfunding, small business owners sell off a piece of their business to a specific investor or group of investors in return for their capital.

Unlike other types of crowdfunding, equity crowdfunding has the potential to collect larger sums of money. Although that doesn’t happen all the time.

Marketplace Lending

Some people have turned to crowdfund to skirt banks and lend money to pay off anything. Peer to peer lending, also known as the marketplace lending, is now welcoming some small businesses that are turning to sites like LendingClub to apply for business loans.

With peer to peer lending, crowdfunding can beat interest rates on banks. Also, for small businesses that may have a difficult time applying for a loan at a bank can find progress with this crowdfunding.

Donation-Based

If you’re a non-profit then you probably have your own form of crowdfunding. This doesn’t need giving any rewards just like what you do with rewards-based crowdfunding.

Donation-based crowdfunding is the online way to give the non-profits run crowdfunding campaigns, they get distributed among interested donors, and you raise money in return.

So, which one are you going to choose?

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