Top 10 Crowdfunding Myths
Noble Pies recently had a successful crowdfunding campaign to open up their second location!
When you work in an industry that’s as new as regulation crowdfunding is, you hear a lot of myths and misconceptions that people have about crowdfunding. Come with us as we debunk the top 10 myths that we hear about crowdfunding all the time:
Crowdfunding is just asking for handouts
While this might be true for the most popular crowdfunding tools out there - Kickstarter, IndieGogo, and GoFundMe - they are all rewards and gift crowdfunders, not investment crowdfunders.
With a platform like Kickstarter, you are essentially asking your network for money without any expectation of paying them back. And often, people are happy to kick a couple bucks to a business they respect. But at many stages, small business owners usually feel uncomfortable asking for money for their business - after all, they’re not a charity or a new product or anything like that.
Enter investment crowdfunding, like Honeycomb Credit - we’re a loan crowdfunding platform that allows you to gather investments from people in your community and pay them back - no handouts whatsoever.
Only rich people can invest in businesses
For a long time, only people with net worths of over $1 million or net incomes of $200,000 or more were able to invest in businesses. However, the JOBS Act of 2017 made it legal for unaccredited investors (everyone else) to make investments, which is made easier by regulation crowdfunding!
With Honeycomb, anyone over the age of 18 can invest as little as $100 in any small business they choose on the platform. While the $100 minimum isn’t insignificant, it still makes it easier for most people to invest in a small business.
My family and friends won’t want to invest in my business
We get it, it can sometimes be uncomfortable to ask the people you love for money, especially for your business. And not everyone has the relationships with their personal network to ask for investments. The good news is that there are some ways to get around this discomfort.
First of all, you’re not asking for handouts for your business (which we’ve already established). If anything, this is a way that you can pay your loved ones back for their support of your business! Framing your crowdfunding campaign with Honeycomb as the investment opportunity it is could be a way of changing the minds of your friends and family who might be on the fence about it.
The other item worth noting is that while your friends and family may not invest (though that’s their loss), your customers will certainly be interested in investing! That’s one of the beauties of investment crowdfunding - it’s not only a powerful way of raising money for your business, but it’s a great way of getting your customers involved in it as well.
It’s easier to just get a loan from a bank
Who told you this? While, yes, you don’t need to go through the work of running a crowdfunding campaign when you go through a bank, it’s not as easy these days to just walk into a bank and walk out with a loan.
Small business lending from banks has been declining for the past several decades, and it’s been exacerbated by the pandemic. As small community banks shut down or consolidate, the larger ones taking their place are far less likely to lend to small businesses - especially those that they deem as risky, like businesses in the food industry or that are younger than two years.
Many small business owners who are afraid they won’t qualify for a bank loan, or have been rejected in the past, are delighted to find out that they get approved for a loan with Honeycomb within days - not the months of runaround you might get from a bank.
Crowdfunding is more expensive than a bank
While yes, the average interest rate of a bank loan is between 2.54% and 7.02% and Honeycomb interest rates range from 5-12%, there is a lot more packed into a Honeycomb Credit interest rate than you might think.
For one, we don’t get any of that interest - it all goes back to the people who invested in you. That means that the community that cares about your business is primarily the ones who benefit from that interest rate.
Also, the Honeycomb Credit interest rate is a fixed income one, which isn’t the case for many bank loans. Basically this means that your interest rate will remain the same no matter how the market fluctuates. This is really great because you’ll know exactly how much you’ll owe when, and you can craft a timeline of your repayments.
The final thing we’ll say about the interest rate is that while it is slightly more expensive than a bank loan, it is a much fairer rate than other forms of small business lending, such as merchant cash advances.
I don’t have time to crowdfund a loan for my business
Running a business is very time-consuming, and crowdfunding isn’t exactly the most instantaneous method of raising capital for your business, that’s true. The fact of the matter is that you will have to put in a little bit of time and effort into your crowdfunding campaign in order for it to be successful. However, in most cases when small businesses put just 4 or 5 hours a week dedicated to their campaign, they see results.
Honeycomb also works with you throughout the crowdfunding process to make it as painless as possible. We help you come up with a marketing plan and give you ideas for social media posts and emails you can send out to your community.
In addition, some business owners choose to elect one person, whether it be an owner or an employee, to be wholly responsible for posting about the crowdfunding campaign - that way it doesn’t get left on the back burner with all the other responsibilities of being an entrepreneur!
I don’t want to give up ownership of my business with crowdfunding!
Some forms of investment crowdfunding, namely equity crowdfunding, sell off portions of ownership of a business in exchange for capital. That’s not what we do, however. With Honeycomb, you’re taking out a loan from your community, not selling any ownership at all. That means that you’ll keep your given share of the profits that will inevitably come with your business’s growth.
I don’t have enough marketing reach to crowdfund
Maybe you’re assuming that you need to have thousands of followers for your business in order for it to have a successful crowdfunding campaign. Well, we’ve found that having at least 250 is a good sign that you’ve got a large enough following on your social media to see success.
If you’re still not there, you might also want to consider that running a crowdfunding campaign is an excellent marketing tool in itself for your business. It can help you reach out to new customers, strengthen the bonds you have with already existing ones, and even introduce your business to a nationwide audience.
No one wants to invest in my kind of business
On Honeycomb, we’ve had all kinds of businesses successfully fund, from restaurants to soap shops to manure companies (seriously). If you think no one would invest in your business because of what you do, that might not necessarily be the case.
While we do have some rules on the businesses we don’t work with (no drugs, real estate, insurance companies, and others), if you own a business that’s direct-to-consumer or business-to-business-to-consumer, there’s a chance that your business will be able to fund on Honeycomb.
Relying on my own savings to grow my business is enough
If this were the case, how would any business grow? One of the biggest misconceptions that business owners have is that debt is always a bad thing. However, if your business is in a period of growth, you usually should find a way to continue that growth in a productive manner - and sometimes you just don’t have enough savings to take your business to the next level right away.
Taking out a loan, whether from a bank or through crowdfunding, is a great way to jumpstart your business’s growth without waiting to save your pennies.
“[Our Honeycomb campaign] got us a lot of attention that we leveraged with the launch in Target, and just our general growth, that really propelled us. Honeycomb was like the jolt in the system that got us to where we are now,” says Myles Powell, owner of 8 Myles Mac ‘n’ Cheese.
Now that we’ve busted some myths, are you ready to grow your business?
While we’re sure not all your questions have been answered, we’d love the chance to continue our dialogue about how crowdfunding can work wonders for your business. Fill out the form below to get started!