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The Ultimate Guide to Crowdfunding Your Small Business in 2021

Curious about small business crowdfunding? Check out this guide on all different kinds of crowdfunding, and how to build a successful campaign for your business's growth!

The Ultimate Guide to Crowdfunding Your Small Business in 2021

Are you a business owner looking to fund your business with $15,000-$500,000 in community capital?

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What Is Crowdfunding?

 

Crowdfunding is a way to raise capital for a business. It’s used by all different industries and sectors, from small businesses to nonprofits to individuals. 

 

The basic premise of crowdfunding is that you can raise money from your social network through the power of the internet. Even if people contribute just small amounts, those individual contributions can add up to some major bucks! 

 

Most of the time, crowdfunding happens through a platform online, where people can create “campaign pages” to raise money, or visit others to contribute money. The amount that you can raise, the terms through which you can raise funds, and many other factors will depend on what model of crowdfunding you choose to use. 

What Types of Crowdfunding Are There?

 

Not every kind of crowdfunding is the same, and some crowdfunding tools are better for some kinds of purposes than others. Here, we’ll go through the different types of crowdfunding so you can get a better idea of what would best suit your business’s needs. 

 

Donation Crowdfunding

 

The kind of crowdfunding most people are familiar with is donation crowdfunding. Gift crowdfunding is seen in platforms like GoFundMe. One way that GoFundMe is used within communities of friends and family, is when someone has a medical emergency and needs funds to pay bills. People donate to campaigns on these platforms with no expectation of any kind of reward or return, just out of the goodness of their hearts.

 

Small businesses typically go to donation crowdfunding for emergency situations. Many businesses resorted to donation crowdfunding when the 2020 coronavirus pandemic forced many lockdowns, shutting off business effectively. 

 

Most of the time, donors don’t respond well to seeing businesses use gift crowdfunding if it’s not for an emergency, meaning if you run a gift campaign to expand your business, you probably won’t end up raising as much as you could potentially with other crowdfunding models. 

Reward Crowdfunding

 

Reward crowdfunding is what platforms like Kickstarter or Indiegogo use. Like gift crowdfunding, people who donate to reward campaigns aren’t doing so expecting a monetary return on it. However, often businesses that utilize reward crowdfunding offer perks such as free merchandise or membership to a rewards club. 

 

The problem with these kinds of crowdfunding, however, is that it’s often really difficult for businesses to reach the full potential of their fundraising goals. 

 

If there’s no monetary incentive, there’s no reason for people to kick in cash unless they really care about the business or cause. It also encourages a pretty one-sided relationship between the business and the customers. 

 

Traxler Littlejohn, owner of Nippitaty Distillery in North Charleston, SC, ran into this issue when he ran a Kickstarter campaign to expand his distillery

 

“About halfway through I noticed it wasn’t gaining any traction no matter what we put out social media-wise or post-wise,” said Traxler. “I was telling my wife, I really don’t think this is gonna work because if it was me [as a Kickstarter contributor], I wouldn’t want to give a lot because you’re not getting a lot back.”

 

However, Traxler tried again with a Honeycomb campaign, and was able to raise $67,377 to build out his distillery’s taproom. “I would rather pay you back as my fan, as a supporter of local business, as someone who wants to help, than I would Chase Bank,” he says. We’ll talk more about Debt Crowdfunding in a second. 

Equity Crowdfunding

 

Equity crowdfunding is a way of raising money for a business while also finding investors in your business. Previously, investing was only available to accredited investors who had a net worth of over $1 million. The JOBS Act of 2017 changed that, making it so that unaccredited investors under a certain net worth could invest up to $2,200 a year in what’s known as regulation crowdfunding. Unaccredited investors can also invest more than $2,200 as long as they have a high enough net worth or annual income. 

 

If you want to raise equity for your business, you essentially are inviting people to invest in your company in exchange for a percentage of your profits. If you’re crowdfunding your equity, per-investor that percentage can be pretty darn small, but it can add up! While it does cut into what your take-home cut is of your business’s profits, it can be a very effective way of inviting your customers to be a closer part of your business. 

 

So, equity is great for high-growth startups, but for small businesses it might not be preferable. After all, you don’t want to give up profits or ownership to strangers! 

 

Debt Crowdfunding

 

Our final method of crowdfunding here is going to be debt crowdfunding, another form of Regulation Crowdfunding. This is what Honeycomb Credit does! 

 

Debt crowdfunding allows you to seek out investors from your community, not just Wall Street investors. With debt crowdfunding you’re making your loyal fans further invested in your business, and are taking out a loan from your community. Instead of paying a bank back, you get to pay back people who will become (or already are) your loyal customers.  

 

The way this works is that a small business runs a debt crowdfunding campaign. Their customers, family, friends, and even strangers can invest in their business for as little as $100. By the end of the campaign, the business will have raised a loan from $15,000 to $500,000+ (depending on their goals). 


 

We’ll get into more detail on the benefits of debt crowdfunding further down the page, but for now it’s worth mentioning that businesses that crowdfund through Honeycomb often see growth beyond just what they’ve raised in the campaign. On average, our alumni businesses see a 60% year-over-year increase in revenue after running a Honeycomb campaign! 

 

Once they have the financing and can grow their business, the company starts to pay back the loan to the community. Honeycomb then manages the repayments and communication about disbursements to investors. 

 

 

Why Should I Crowdfund My Small Business?

 

In a world where there are so many other options to finance your business, from getting a small business loan to seeking out investors, why should you consider crowdfunding?

 

Well, not only is it becoming increasingly difficult for small businesses to access capital through traditional means, these kinds of loans also don’t come with the benefits that crowdfunding offers beyond just raising money. 

 

Difficulty in Funding Small Businesses through Traditional Financing

 

If you’re getting started with your small business and you need funding, it might be difficult for you to find it from a traditional institution like a bank. Small businesses often don’t receive the credit they deserve from banks, even if they are

established. 

 

There are many obstacles to getting a loan from a bank for small businesses, from lack of funding for start-up businesses to requirements for collateral or personal guarantees. This makes it especially difficult for entrepreneurs from socially disadvantaged groups. 

 

Black-owned businesses, for example, only make up 3 percent of funding from loans found through the SBA. This shows great potential for alternative funding sources like crowdfunding to help close that funding gap for all business owners. 

 

2 Major Benefits of Crowdfunding Beyond Capital Raised 

 

How many forms of business financing can say that they have benefits for businesses beyond just raising money for them? Well, with crowdfunding, the useful potential for growing your business extends into your business’s marketing and customer relationships.

 

What do we mean by this? A crowdfunding campaign is first and foremost an excellent way of marketing your business and generating buzz around it. 

 

If you’re new to an area, offering people in your community a chance to invest in your business is a great way of spreading the word about your business. The added bonus of this is that debt crowdfunding is such a relatively new means of fundraising that oftentimes your campaign will receive press attention. 

 

Running a crowdfunding campaign also can help you strengthen the customer relationships you currently have. When a customer invests in your business, they now have a self-interest in seeing your business grow. This transforms them from just a regular customer into a brand advocate.

 

Brand advocates will shout your business’s name from the rooftops! They’re more likely to patronize your business and bring their friends, and hype you up to those around them. What’s more powerful for your business than a glowing word-of-mouth review? 

 

 

Ready to get started on your crowdfunding journey?

You can learn all about Honeycomb crowdfunded business loans for small businesses, and see how you can leverage your customers and loyal fans to help grow your business! Keep reading to find out more on how you can successfully pull off a crowdfunding campaign, also with the help of Honeycomb. 

 
 
 

UnBar Cafe in Cleveland raised $30,675 to hire back employees during the COVID-19 Pandemic!

 

How do I Crowdfund Successfully?

 

Once you’ve decided to take the leap into crowdfunding your business, you might be wondering how you can do that. 

 

That’s a valid question - it can be difficult to reach out to people about your campaign, and even more difficult to know where to even begin with crafting a campaign page that will generate investments. 

 

Most crowdfunding platforms kind of let you figure all of this on your own. This can be nice, but also makes it more difficult to pull off a successful campaign if you’re not quite sure what you’re doing. 

 

This is why the industry average for crowdfunding success is 23%. Honeycomb, however, works with you every step of the way, and our crowdfunding experts help you manage and market your campaign from start to finish - giving us a success rate of 83%

 

How to Know If Your Business Is Right for Crowdfunding

 

Some businesses are better suited for others for crowdfunding. Small businesses typically do well, especially those that are direct-to-consumer. 

 

While you can be a new business and crowdfund, you also want to show that you can generate steady revenue (or have a compelling path toward a steady stream), and you’ve got a loyal customer base. After all, that customer base is going to be funding your business!

 

Your business’s place in the community is also an important factor to consider when crowdfunding. Whether you’ve got deep community ties or are a first-mover in your area, these are all great reasons to start a crowdfunding campaign.

 

The kind of project you’re considering getting funding for is also something to consider when deciding to crowdfund. Most of the time, a tangible project such as purchasing a food truck, opening a new location, or renovating your current one is something that will find success in crowdfunding. People like to see physical results of what they’re investing in, after all! 

 

Bust Myths about Crowdfunding

 

A lot of times people who are only sort-of familiar with crowdfunding have some misconceptions in their head about the process.

 

If the only kind of crowdfunding you’re used to seeing is donation or reward crowdfunding, you might be thinking of it like “digital panhandling.” A lot of small business owners become entrepreneurs because they’re self-reliant, and they don’t want to ask anyone for help. 

 

Well, debt crowdfunding busts that myth, because it’s not just a one-way relationship - it’s a reciprocal relationship between your business and your customers, and a way for you to give back to your community while growing your business at the same time. 

 

Other times, people think that in order to crowdfund successfully, you need to have rich friends. While that certainly helps, the whole ethos of crowdfunding is that many small drops can fill a bucket, democratizing access to funding. Investors can put in as little as $100 into your campaign, and every investment gets you closer to your goal.

 

Tips for a Great Small Business Crowdfunding Campaign

 

One of the most important steps toward a successful crowdfunding campaign starts before you even begin. One of the best factors of success for a campaign is to be sure that you have a good crowd built up behind your business - after all, it’s in the name of the game, isn’t it?

 

You can build your crowd in many ways, from starting with your inner circle to marketing using the power of social media and word of mouth. Once you have this following, the act of generating investments in your business through crowdfunding will be a breeze! 

 

The first step in your crowdfunding journey is to craft an amazing campaign page - this will often be an investor's first impression of your business. You want to explain who you are and why your business exists, what your goals are with this crowdfunding campaign, and why your business matters to your customers (and why it should matter to a potential investor). 

 

Remember how we said that our crowdfunding experts work with you on the process to help you reach your potential for your crowdfunding goal? Well, they have some really great tips to pull off a successful crowdfunding campaign

 

Here’s a freebie, and it might seem a bit counterintuitive: don’t go straight to social media when you’re crowdfunding. Instead, try and build up at least 10 percent of your campaign raise from your inner circle of supporters. Then, when you open your campaign up to the wider world, people will see that you’ve already got people behind you, so an investment in you is likely to be a good one. It’s kind of like when you see a musician’s tip jar - there’s always already a dollar in there, right?

When you wrap up your crowdfunding campaign, it's definitely time to celebrate, but the fun doesn't stop there. You want to make sure to thank your investors and continue building relationships with them, and also now's the time to put that money you raised to work!

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Josh of Go Buddha crowdfunded to expand to 16 states and build healthy food vending machines!

What Small Businesses Choose Crowdfunding?

 

There are almost limitless possibilities for the kinds of businesses that choose to crowdfund their business growth - we’ve seen everyone from pickle companies to yoga studios choose to take out capital from their communities to reach their new goals. Here are a few of our favorite success stories that have come out of crowdfunding with Honeycomb: 

 

Harvie is a tech company in Pittsburgh that delivers farm-fresh produce from local farms to consumers through community-supported agriculture shares! In 2021, they were looking to expand their market and improve their distribution in the Pittsburgh area, so they ran a Honeycomb campaign, raising $236,000 from their community! 

 

Square Cafe is a beloved brunch institution in Pittsburgh that decided to move from their original location to one three times as big in 2020 - and so they needed capital to renovate the new space and make it restaurant-ready! They raised $250,000 for this move in record time, and continue to serve up great breakfast food and community ever since.

 

Blackberry Meadows, a small family farm outside of Pittsburgh, was looking to expand their agritourism operations for their business. They used their Honeycomb campaign to purchase canvas cabins, making their outdoor Airbnb farmstay a unique option for travelers.

 

Little Spark Refill Shop in Cleveland, Ohio, raised over $65,000 to open up a second location for their burgeoning zero-waste refill shop business. Owner Rachel Regula says, “My local investors are my customers already. It just makes it a little bit more exciting when they come in and get to be a part of that whole process.”

 

Pittsburgh Juice Co was actually the very first campaign Honeycomb ever ran! They were able to raise $38,000 in order to purchase a refrigerated truck to aid in distributing their cold-pressed juice all over the city. “What Honeycomb offers is a way to do funding, which every business owner needs at some point for something if they're ever going to grow and expand,” says owner Naomi Homison. “So, it just seems like a really great way to give back to the community that we are working so closely with.”


 

Crowdfunding that Builds Buzz and Businesses

Crowdfund a loan from $15,000 to $500,000 with capital from your biggest fans and most loyal customers to grow your small businesses! 

Click below to get started.

 
 

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