(Shutterstock)

(Shutterstock)

Better Crowdfunding Means Better Business

Back Web Only Nov 18, 2015 By John Arensmeyer

Small businesses keep California humming. They make up an impressive 99.2 percent of California’s employers and employ more than 6 million Californians. But small businesses can’t thrive and grow – or even get off the ground – if they can’t access loans or credit.

Unfortunately, access to capital has become a real problem for small business owners, with big banks only approving two out of 10 small business loan requests. The recession placed a chokehold on funding from banks, leading many institutions to reduce or eliminate loans valued below $250,000. This change hit small businesses particularly hard, as 68 percent of small businesses seek loans of $250,000 or less. Plus, other banks simply won’t lend to businesses with annual revenues of less than $2 million. Given these statistics, it’s no surprise that Small Business Majority’s polling found 90 percent of small business owners identify access to capital as a top concern.

Entrepreneurs are known for their creativity and resilience, though, and they’ve turned to new technologies to tackle the access to capital problem. One of the most popular new funding options for small businesses is crowdfunding, which allows businesses to solicit online donations from supporters through websites like Kickstarter and IndieGoGo.

In a typical crowdfunding campaign, business owners launch online campaigns that pitch their ideas, detail the amount of money they’re seeking and explain why they need the money. Usually, campaigns also offer rewards to supporters who contribute, like early access to products, discounts or other perks.

Jason Poole is one of several Sacramento-area small business owners who have turned to crowdfunding. In 2013, he raised more than $14,000, which helped him get his pickling company Preservation & Co. off the ground. When he decided he wanted to expand, he launched a second crowdfunding campaign and secured an additional $22,000. These funds allowed Poole to open a 3,200-square-foot retail store and production warehouse. Now, more than 400 locations sell or serve Preservation & Co.’s products, and its retail storefront is packed with items like pickled vegetables and an original Bloody Mary mix.  

The advantages of crowdfunding for small businesses are significant. Crowdfunding platforms remove much of the red tape associated with bank loans and provide a flexible option, offering room for every business niche and financial situation.

Crowdfunding also offers substantial marketing benefits. At their heart, crowdfunding campaigns are as much about promoting a business idea as they are about securing financing.

“For me, crowdfunding wasn’t just about securing capital,” said Poole. “I reached 238 people through the campaign, which meant 238 people learned about and tried my product. Without crowdfunding, that level of marketing reach would be extremely costly.”  

While many small businesses have successfully used crowdfunding, its potential has only just begun to be tapped – particularly in the realm of investment crowdfunding. Instead of offering product discounts or other similar rewards, as is most common for crowdfunding, investment crowdfunding offers campaign backers direct financial returns. These returns typically take the form of equity shares, interest payments on a loan or a share of revenues.

Until recently, only accredited investors – defined by the U.S. Securities and Exchange Commission (SEC) as individuals with earned income of more than $200,000 or a net worth of more than $1 million – could participate in investment funding. But the SEC changed that by finalizing rules for Title III of the Jumpstart Our Business Startups Act in late October, allowing the average American to participate in investment crowdfunding. This change promises to expand crowdfunding opportunities.

Crowdfunding is a necessary new tool for entrepreneurship. It’s opening doors and providing options to small business owners. To learn more about crowdfunding and other access to capital options and resources for small business owners, you can visit: http://www.sbmbizportal.com/.

Comments

Ivan (not verified)November 18, 2015 - 12:47pm

Crowdfunding opens up opportunities for many companies. It is very hard for individuals to find financing from banks and institutions these days. Not only do crowdfunding campaings provide financing, they also promote your company and build customers. I think you have the be creative these days and crowdfunding certainly allows for that.

Business Developer at Thrinacia White Label Crowdfunding

Maryann (not verified)March 2, 2016 - 10:39pm

Crowdfunding is very helpful though, it can provide access to the capital. It is a great way to fund a venture. One of the best is that it also serves as marketing tool, it actively campaign and introduce your venture to the market. It gives a proof of concepts, allows brainstorming and its free PR. LOL

Regards,
Maryann Farrugia
http://www.offshorebusinesspro...

Frank (not verified)July 21, 2016 - 4:54am

Crowdfunding can defiantly help with business growth. And then if have low budget you can hire remote staff to save cost and spend that budget on product marketing I believe.!!

Paul Dejesus (not verified)March 1, 2017 - 9:34pm

Small business owners are worried about their business development in comparison to big business ventures. As they are getting low opportunities to develop their business network, therefore, they need to following different strategies, looking for capital, resources, and investment. Apart from these, we should also accept some of the beneficial points from this article regarding crowd funding and other sources for business growth.

Mike Jobes (not verified)March 11, 2017 - 7:27am

That's actually true If i would be able to get funding for the new applications my agency is developing I would be able to do business better by hiring more qualified staff.
Regards,
Founder

Eric Hoover (not verified)August 24, 2017 - 1:54am

For every business organization, it is quite essential to get good funding from different sources, so that they can easily run their business in a positive way. Different types of funding are quite helpful that includes, crowd funding and if a business can get good crowd funding then it can get good success.
https://suitcaseentrepreneur.com/

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