The Pros and Cons of Crowdfunding for Your Small Business
Updated: Jan 11
Luke Cypher, owner of Blue Sparrow Food Truck, in the food bus he crowdfunded on Honeycomb!
Like any big decision when it comes to running a small business, the decision over how you're going to raise money to grow it is one you want to put a lot of thought into. Read on to find a candid look at the various pros and cons of crowdfunding a loan for your small business, which you can use to better decide for yourself whether you think it's a good fit for you!
Pros of Crowdfunding
Access to cash you might not be able to get from a bank
Many businesses that choose to crowdfund do so because they can’t get a loan from a bank. This is through no fault of their own - banks are tightening up their criteria for lending, so often businesses that are just starting out, don’t have lots of assets yet, or are in a risky industry like food get left behind by traditional financing.
One such entrepreneur was Darren Carter, owner of Carter’s BBQ in Cleveland Ohio. Darren tried to get a bank loan when he wanted to expand his barbecue business, but found no luck.
“I couldn't get a loan from a local bank, and when I met with Honeycomb, I told them, ‘Look, I don't want to go through this process if I'm going to be denied again.’” says Darren. “Honeycomb ran the numbers, saw the plan, saw what we were trying to do. What was key was that Honeycomb saw us.”
After Honeycomb approved his loan, Darren ran a crowdfunding campaign that raised $30,000 so that he could purchase a food trailer and smoker!
Improves Customer Relationships
Another pro to crowdfunding is that it’s the only kind of small business funding that can also improve your business’s relationships with your customers at the same time.
“The most positive aspect of what Honeycomb does is that it opens up an opportunity for utilizing more than just your friends and family. Where I think Honeycomb is hitting a market where you're able to utilize what you're already growing,” says Luke Cypher, owner of Blue Sparrow Food Truck in Pittsburgh. Blue Sparrow crowdfunded on Honeycomb to purchase a refurbished Greyhound bus to add to their food truck fleet!
“For people to be able to invest $100 and see a return on that, they don't feel like they're just giving you money so that you can continue your business. They feel like they're a part of the process, and I think that's the most awesome part.” Luke continues.
Marketing boost for your business
Crowdfunding also helps you to boost the marketing for your business in a very unique way. First of all, in crowdfunding you’re pounding the pavement to tell your community about your business and your funding goals. That’s a very direct way for you to get out into the world and let them know about your business.
Also, because loan crowdfunding is such a new form of small business financing, it’s very attention-grabbing. Plus, giving people the chance to invest in your business is such a strong boost to your standing in the community.
"What I love about Honeycomb Credit is the opportunity it provides for people who believe in our business to invest in us for a competitive return. Not only is it a great way to give back to our customers, it also has proven to be a powerful marketing tool for our growing business,” says Naomi Homison, owner of Pittsburgh Juice Company.
Naomi was actually the first ever entrepreneur to run a Honeycomb campaign, which raised her money to purchase a refrigerated truck for her business. So, as you can see even as an unknown at the time, the power of crowdfunding was present!
Potential for a revenue increase
Honeycomb campaigns on average see a 60% increase in year-over-year revenue. You heard us, 60. Percent.
How does this happen? Well, the aforementioned pros all have a part in that number. Access to funding plus improved customer relationships plus a marketing boost equal business success!
How you choose to use the funds from your Honeycomb campaign also factors into your revenue increases. For example, Tall Pines Distillery in Salisbury, Pennsylvania ran two Honeycomb campaigns to grow their distillery. The second campaign hit its maximum goal in just five days - an insanely fast turnaround! This campaign was meant to finance their new boutique at the distillery, opening up a new revenue stream.
Our final pro to crowdfunding is that crowdfunding has a proven success rate in getting small businesses the funding they need.
Honeycomb has an 83% success rate, compared to a 22% industry average success rate. Why is there such a difference? Well, the combination of the incentive of loan crowdfunding, the expert coaching you receive from our team, and the marketing support we offer are all just part of the winning formula.
Cons of Crowdfunding
It’s a lot of work
We won’t sugarcoat it - crowdfunding is not the easiest kind of funding for a small business. It takes a lot of time and effort to effectively pull off a campaign - lots of creating marketing materials, posting them, pitching your campaign to the public.
“It was a lot of work. But I mean, we don't get anything if we don't work, right?” says Darren. He told us that he considered his time running a Honeycomb campaign to be just one more aspect of his normal business operations. It’s a lot of work, but it’s ultimately for the good of the business. Darren continues, “If you work the plan and you trust the plan, the outcome is going to be wonderful.”
This isn’t to say that you’re left on your own to do all the work with Honeycomb! Where Honeycomb differs from other crowdfunding platforms is that we actually help you do all the work. We help you strategize, organize a video shoot for your page, give you ideas for marketing materials.
“When I was in the intro meeting with Honeycomb, I started crying,” says Samantha Story-Camp, owner of Pip and Lola’s soap company in Pittsburgh. “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.’”
You might have to explain the type of crowdfunding - over and over again
We mentioned before that loan crowdfunding is kind of a new concept for many people, which means when you go about promoting your crowdfunding campaign, you might need to explain it a few times.