How does Crowdfunding Work for Small Business Loans?
Updated: Apr 11
If you’ve been delving through the murky waters of small business financing, you might be looking at several options and wondering how they all work! Business financing comes in so many different options that it can be a bit overwhelming. This can certainly be the case when you’re considering crowdfunding as an option for funding your business.
Read on to find out more about the process of running a crowdfunding campaign to get a small business loan, what makes Honeycomb Credit different from other crowdfunding platforms, and why it works.
Grow your business with your people
There’s a reason that Honeycomb Credit has an 83% success rate with our crowdfunding campaigns. Our winning combination of expert coaching, investment over donation crowdfunding, and network of investors ready to invest in small businesses has helped hundreds of small business owners access the funding they need to reach the next step of their growth journey.
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Apply for a loan and go through credit analysis
Your crowdfunding journey with Honeycomb begins like with many other small business loan processes: the application and credit analysis process.
Now, some business owners might see those words and get a bit nervous, because often small business loans are hard to come by, especially from large institutions like banks. Many small businesses have had the disappointing experience of applying for a loan from a bank, going through months of run-around, only to be rejected.
At Honeycomb, this process typically takes only a couple of days. Plus, unlike banks, we don’t just look at the numbers when reviewing your loan application. While small businesses that crowdfund with Honeycomb undergo a credit check and other vetting, we also look at the whole picture when looking at your business’s fit,
This means that if a bank has deemed your business unqualified, there’s a chance that you’ll be approved for a crowdfunded small business loan. While a bank might reject you because you’ve been in business for less than two years, if you can prove that you’re ready to take on debt and are in a great position to grow, a Honeycomb campaign might be right for you. .
We do this primarily because a Honeycomb campaign is an investment for people who contribute to it - they want a sense of assurance that they can get their money back, plus interest. This is why we go through the vetting process, because it’s what’s fair to you and what’s fair to the investors.
This is also where we determine things such as your funding goals and the interest rates you’re going to take on. At Honeycomb, we determine interest rates based on the level of risk involved in investing in your business, which is why we go through all this analysis!
Meet with your crowdfunding campaign strategist!
One of the biggest differences between running a crowdfunding campaign with Honeycomb and running a campaign with another crowdfunding platform is that we work with you every step of the way to better ensure your success.
Once you’ve accepted your term sheet and run through credit analysis, it’s time to meet your campaign strategist. This is a crowdfunding expert who is there to help you develop your campaign and promote it to your community.
The first thing the strategist will do is to meet with you and discuss your business’s needs, and learn more about your familiarity with the crowdfunding process. Then, they’ll provide you with a customized playbook with everything you need to know about how to run a successful crowdfunding campaign.
Your campaign strategist will help you with marketing strategies and tools for your business, will help with your campaign page, and coordinate a free video to promote your business and your campaign!
This is leaps and bounds more than a platform like Kickstarter will provide for you. In that case, you’re usually on your own to do all the writing, editing, strategizing, marketing, and more all by yourself. And as a business owner, who has time for that?
“When I was in the intro meeting with Honeycomb, I started crying,” says Samantha Story Camp. Samantha is the owner of Pip and Lola’s, a soap store in Pittsburgh that recently raised $96,000 with Honeycomb Credit. “ I’m like, ‘Wait, you guys edit the videos? I don’t have to come up with perks? You’re going to give me verbiage? This is like Christmas.’”
Samantha had previously run campaigns with other crowdfunding platforms like Kiva and Indiegogo, but she reports that the best support she had with the process of running the campaign was certainly with Honeycomb, thanks to the work of her campaign strategist, Samantha Graf.
A crowdfunding campaign in action
Here’s where we get into the dirty details about how this actually works. See, with crowdfunding in a rewards sense, which is what most of your community is probably going to be most familiar with, people donate to your cause without expectation of any sort of return - maybe a free t-shirt as thanks or something like that. With loan crowdfunding, they’re actually investing in your business, with the expectation of getting their investment back plus interest.
With every investment (which can be as small as $100 and as large as tens of thousands!) , your campaign gets closer and closer to reaching your minimum goal. When you reach that goal, the money is yours to use for your growth project, but you can still continue raising money until your campaign closes or until you reach your maximum goal.
When your campaign is in action, this is the moment you start promoting your campaign like crazy. You might feel hesitant to reach out to your community, to be seen as asking for money, but this is why it’s so, so important to emphasize that this is an investment opportunity for your community!
It’s so important to keep the momentum going on your campaign, even after you’ve hit your minimum goal, even when it seems like you’ve bugged everyone in your contacts list. We promise that you’re not annoying people when you offer them an opportunity to invest!
For an example of a business owner who rocked promoting their crowdfunding campaign, we have to commend Rachel Regula, owner of Little Spark Refill Shop in Cleveland, Ohio. Rachel went to social media and her email marketing list again and again to raise awareness about her campaign and what an amazing opportunity it was to invest in it!
Here are some examples of those posts on Little Spark’s Instagram account! (You might notice that she mentions a different name - Better World Refill Shop. Shortly after running her campaign, Rachel rebranded into Little Spark Refill Shop):
Rachel also included an appointment link on her campaign page that allowed potential investors to meet with her to discuss her business and the Honeycomb campaign. She found that this open-door policy not only allowed her to communicate her campaign on her own terms, but helped form a stronger connection with those investors.
Access your funds and put them to work
Once you’ve hit your minimum goal, you can start using the money you’ve raised with Honeycomb and begin work on the project you set out to fund! Whether it’s to open a new food truck, expand your business’s distribution, or grow your sales team, you’ve raised the money to do it, now it’s time to seize the moment!
At this point, it’s a good idea to post regular updates on your work - especially while you’re still running the campaign. You want to let people, your investors especially, in on how the progress is coming on the project you’ve funded.
We know it often takes some time to start generating revenue after taking on a growth project, which is why there’s a 45-day no-payment period after you’ve finished your campaign. This gives you the chance to get everything in order and get started on your growth journey before you start making payment on the loan.
When you do start making payments, your investors will get quarterly emails from us notifying them about the payment. We’ll also include in the email any progress you’ve been making on your project. This is great, because it shows investors what you’ve been up to, and also keeps your business front-of-mind in case they feel a hankering to visit you.
Wrap up your campaign and get ready to grow your business
The benefits of running a Honeycomb crowdfunding campaign don’t end when you’ve closed your campaign - they’ve only just begun.
First of all, have we mentioned that on average Honeycomb campaigns see a 60% increase in year over year revenue?
This can certainly be attributed to the money raised by the Honeycomb campaign and the growth resulting from that, but also the strengthened customer relationships that come from running a campaign. What we mean is that when a customer invests in your business, they’re now invested in your growth because your success is their success. So, they’re more likely to return to your business, spend their money there, and promote your business to their social networks.
After your Honeycomb campaign is over, you also have access to the network of Honeycomb alumni. You can connect with business owners in your community who’ve run Honeycomb campaigns - we’ve even seen some pretty cool collaborations come from partnerships between Honeycomb alumni.
Ready to get started growing your business with the community by your side?
Crowdfunding is a process, but with the Honeycomb team by your side, you’re all the more closer to accessing the funds to fulfill your small business dreams. Fill out the form below to receive more information about running a Honeycomb campaign!