There are many reasons why crowdfunding can be beneficial for small businesses. Crowdfunding can be a great alternative to a loan. Small businesses usually get higher interest rates compared to getting a loan for a house or a car. This is because small business has more inherent risk. Most small business owners have to open up personal lines of credits to finance the first two years of their business, and getting friends and family to loan you money isn’t the best option either. Before a small business owner starts a crowdfunding campaign, here are the questions they should ask.
How much money do I need and how fast do I need it?
Crowdfunding for small businesses can work well as long as you know exactly how much money you need. If you need to raise $100,000 for new equipment, the likelihood of a successful crowdfunding campaign is low. Maybe you can raise $100,000, but how long would it take? Crowdfunding takes a lot longer to receive the money than a traditional loan or check. Crowdfunding campaigns can last up to 6 months. If you can wait 6 months to raise $100k then it’s not a bad idea. However, for most small businesses waiting 6 months to raise $100k will not make sense.
Are you raising money for a good cause?
Crowdfunding is extremely successful for forward thinking companies. If you’re raising money for self gain, then there’s a high chance you will not be successful with crowdfunding. Raising money through crowdfunding is not easy. If your idea is for the greater good of society and people can emphasize about the cause, that’s a huge benefit. We see many small businesses trying to raise money through crowdfunding with some very simple ideas where there are hundreds of copies online. Your project needs to be innovative.
Do you have a good story?
Small businesses that have a great story have the highest chances of successfully raising money. Remember that crowdfunding means that you raise money from many different people and not just one. A small business owner who can easily relate to his audience on a personal level will have the highest success of raising capital. The projects I personally contribute to have founders that have a very similar story to myself. They probably failed three to four times before, learned from their experiences, and never give up. This drive is something I can relate to and I can personally get behind.
How far are you into your small business?
Every project has a different pace and is at a different stage If you’ve been toying with the idea of starting a new movement, project, or have a new vision and don’t know where to start, then crowdfunding can be a great option for you. If you’ve been in business for over two years and are looking for a new market, then crowdfunding may be a great idea. If you run a cash flow positive business and have been at it for a few years, then it may not make sense to crowdfund as their are many ways you can improve your business internally.
Crowdfunding for small businesses is a great idea if you have the time, an innovative concept, and resources to dedicate to the campaign. Many people make the mistake where they think crowdfunding is easy and free money. It’s definitely not free money as you have to put in a lot of time to gain traction and a lot of resources into creating the digital assets such as explainer videos to effectively share your idea and make it understandable. But if done correctly, it’s a great way to jumpstart your idea and bring your project to the next stage.
At ELIX, we’re building a crowdfunding platform that also supports block-chain entrepreneurs. Download our app here for IOS and here for Android.