Embarking on a crowdfunding campaign can offer far greater reach when looking for suitable investors
Generally viewed as an alternative source of business finance, crowdfunding involves numerous investors offering small amounts of money that contribute to a funding target set by the company.
Online crowdfunding platforms let the borrowing business put forth their plans for growth within a comprehensive online document that includes the usual forecasts for cash flow and sales, plus a vision of their ideal outcome.
Those seeking to invest can be matched with appropriate businesses, with some simply choosing what they deem a good proposition for high returns.
An additional benefit for the company seeking funding is the exposure of their business to vast numbers of potential investors, and the chance to relay their intentions, goals and future expectations in detail. This can be particularly beneficial for retail business, instantly locking in loyal customers.
How does crowdfunding benefit a growing business?
Embarking on a crowdfunding campaign offers far greater reach when looking for suitable investors. Taking advantage of social media allows businesses to present a consolidated campaign for funding, whilst conveying a deep understanding of their sector.
The reasons why their business will succeed can be put forward with conviction, and accompanied by the relevant facts and figures. An online crowdfunding ‘profile’ often becomes a fluid document as potential investors pose questions and bring up perhaps previously unconsidered factors. This allows the business to amend and improve their offering as time goes on.
What is debt and equity crowdfunding?
There are two types of crowdfunding likely to be used by companies looking to expand their operations:
• Debt crowdfunding: the investor receives a return on their money in the form of interest. This type of crowdfunding is also known as peer-to-peer lending, and offers the benefit to companies that their equity is not diluted. Securities are used to provide the loans, with the online platform taking a percentage fee.
• Equity crowdfunding: investors put money into the company in return for equity shares. Further down the line, investors receive dividends or distributions as the business grows and revenues are increased.
Crowdfunding has become an increasingly mainstream method for growing businesses to access funds needed for expansion. Being able to present an extensive campaign, which can be updated quickly when necessary, is one of the biggest advantages of this finance route.