4 Types of CrowdFunding Platforms for Businesses

Four Types of Crowdfunding Sites for Startups and Small Companies

Business funding alternativesWhen most people think of business crowdfunding, they visualize sites like Kickstarter. Certainly, Kickstarter has helped many startups get a promotional and monetary boost, but it only represents one type of business crowdfunder. Raising funds from the crowd might be easier on another kind of platform, depending upon your business goals and kind of company.

What’s the Best Crowdfunding Option for Business?

Companies with great ideas and lots of promotional savvy might consider some different types of alternative finance platforms. They work very differently. As the owner of a small or startup business, you should consider the amount of capital you hope to raise, the general kind of investor or donor different platforms attract, and what you intend to give up in return for raising funds.

Besides donation crowdfunding, what are your options? If you’ve got a startup or small business to grow, you may also consider crowd lending for businesses, crowd equity investments, and other kinds of P2P business funding platforms. Note that these are different than small business funding sites like Kabbage. These are actually backed by a bank. Any kind of crowdfunding site solicits funds from individuals or groups. They just achieve this same mission in different ways.

1. Crowd Lending for Business

P2P lending started out focused on offering personal loans to people. As type passed, platforms emerged that focused on business lending and some personal platforms expanded their services to small business loans over time.

Platforms that focus on crowd lending for business include:

  • Funding Circle
  • LendingClub
  • Street Shares

A crowd lender attracts investors who just hope to earn a return on their investment. It’s important to understand that this makes them distinct from equity crowdfunding, where investors actually want a stake in the business in exchange for funding. With a business crowd lender, the owners still retain control but have to take on debt.

Even though these P2P business loan sites may not require business credit scores, they generally have requirements for the owner’s personal credit score. Typically, owners need to have average to good credit.

2. Equity Crowdfunding for Business

Some business owners start their business with the idea that they can get funded by investors. They plan to convince these investors that they can turn a fantastic idea into a profitable business, so those investors will off them a money in return for a company stake.

Fundable is one notable example of a site that pairs businesses with investors. The site provides an option to use rewards crowdfunding, like a donation crowdfunding site, or equity crowdfunding, with the company actually selling shares.

With equity crowd funding, companies do have to give up shares in their business, but they don’t actually need to take on more debt.

3. Donation Crowdfunding

MiniBiz already covered the pros and cons of donation crowdfunding for business. No debt gets taken on. Instead, businesses hope to elicit donations by generating excitement for their idea and by offering some kind of reward. Sometimes this kind of platform is also called rewards crowdfunding.

Some of the largest reward crowdfunding sites include Kickstarter and Indiegogo. Though these platforms offer the same basic kind of service, they operate very differently. It’s important to find the platform that has the right audience and rules for your company. As a note, Fundable also a donation crowdfunding option.

Companies don’t have to actually take on debt, though reputations might suffer if they don’t honor their promises to send rewards. These sites can also offer some businesses a way to raise awareness for their brand. The fact that the average reward crowdfunding campaign only raised about $7,000 is the biggest drawback. Startups and small businesses might obtain much larger infusions of cash from equity or loan crowdfunding.

4. Niche-Specific Crowdfunding

Industry-specific P2P funding sites might offer different kinds of crowdfunding schemes. It’s just important to mention that these exist. Because they attract investors with an interest in that industry, they may provide a better option for certain companies that do business in that niche.

For example, Patch of Land is a crowdfunding lender that targets real estate investment. Their audience wants to invest in real estate projects. It’s likely that other platforms have donors and investors who are interested in commercial real estate, but it might help to know that some sites target certain verticals.

Which Type of Business Crowdfunding is Best for Your Company?

Each kind of crowdfunding site has some amazing success stories to boast about. As with most business financial decisions, there isn’t one right or wrong answer for every company. Also, each platform has different rules and different types of investors. If you’re interested in crowdfunding for you company, you might be prudent to do some research before you decide which platform to focus on.

You can certainly find exceptions, but you might consider reward crowdfunding for more modest amounts of funding. The big difference between equity and loans is the balance between giving up control and a stake in the company and taking on debt.

If you’ve got any small business crowdfunding success stories to share, why not leave a comment?

 

One Comment

Add a Comment