Trying to secure startup financing for your business can be an incredible uphill battle. How can you get lenders to see that you and your business are a viable bet?
One option for startup funding as well as proof of concept is crowdfunding.
The crowdfunding economy has seen explosive growth in the past four years, growing 167% in 2014, and that growth is expected to continue in 2016 and beyond—in part thanks to this year’s Title III addition to the JOBs Act, which expanded access to equity crowdfunding for small businesses.
Unlike bank loans or equity deals, you don’t always have to disclose your personal or business financial information. But you will need to convincingly demonstrate the viability of your project or product. Here are some types of crowdfunding that may work for your business:
- Reward crowdfunding: Leverage platforms such as Kickstarter, Indiegogo, and more to raise money for your business by offering a (future) product or a token reward such as a Thank You card, T-shirt or handmade candle. The crowdfunding platform will generally take a small percentage of your total sales, but this is one way to test the market and get your product in front of potential customers.
- Equity crowdfunding: Leverage platforms like CircleUp, SeedInvest or StartEngine to raise money for your company by offering a percentage of your company to investors. Although you won’t need to spend time on a loan application, you’ll generally need a detailed investor presentation and documentation, such as historical and projected financials.
- Community crowdfunding: This includes sources such as Kiva or Community Sourced Capital, which allow you to crowdfund a small amount of money at 0% interest without needing good credit. Sound too good to be true? Businesses are expected to show they have the support of their community behind them by gathering initial loans from family, friends, and other philanthropic-minded supporters.
Check here for more startup financing options for your business.
This article was originally written on October 14, 2016 and updated on November 3, 2016.