Guide: Is crowdfunding right for my small business?
Updated: Aug 10, 2021
So, you’re wondering if crowdfunding is right for your small business?
This guide will give a high-level introduction to crowdfunding and highlight the 4 types of crowdfunding to help you understand which option — donation crowdfunding, reward crowdfunding, debt crowdfunding, or equity crowdfunding — makes the most sense for you and your business.
Donation crowdfunding is when your business asks for donations to support a project, there are typically no rewards, perks, or returns expected from backers but rather they are making a contribution because they believe in the story or the project.
Reward crowdfunding or gift crowdfunding for businesses is when your business pre-sells products to help fund startup costs to develop, manufacture, or fulfill product orders. Reward crowdfunding can also be used to offer perks such as company swag or access to events. When backers support your reward crowdfunding campaign they are expecting you to use the money toward your stated purpose and to fulfill their reward in a timely fashion.
Debt crowdfunding (sometimes called crowdfinancing or loan crowdfunding) is one of the youngest and fastest-growing categories of crowdfunding for small businesses. Only legal since 2016 in the United States, debt crowdfunding is when you borrow money from your own customers, fans, or community members through a crowdfunding campaign.
Like debt crowdfunding, equity crowdfunding is also relatively new on the crowdfunding block and it involves selling a piece of your company to individual backers. Equity crowdfunding can be valuable for high tech or high growth companies who may not have the cash flow to service a loan through debt crowdfunding, but who are looking to raise more money than a traditional reward crowdfunding campaign may be able to support.