Why Crowdfunding May be the Best Financing Option for Your Small Business

Linda Childers

Two years ago, Patty Lennon launched her first crowdfunding campaign on the global fundraising site, Indiegogo, hoping to raise $6,244 to cover initial costs for a business conference for women business owners. In 14 days, Lennon had surpassed her goal and raised $7,825.

Lennon isn’t alone. Many small business owners are looking for methods that go beyond traditional bank loans to fund projects and expand their businesses. Many small business owners claim that while although commercial loans are more attainable, they are still a less desirable financing choice.

One of the newest financing options for small businesses, crowdfunding allows businesses to work with fundraising sites such as Indiegogo, Kickstarter, and Fundable to raise small amounts of money from large groups of people. In return, these sites charge a fee, typically between 4-9%, to help administer the campaign.

Crowdfunding offers an alternative to bank loans, borrowing from friends and family, and seeking out large investors.

Yet while crowdfunding may sound like an easy and lucrative option, Lennon, a crowdfunding expert and author of The Crowdfunding Book: A How-To Book for Entrepreneurs, Writers and Inventors, says small businesses need to realize that a successful crowdfunding campaign requires commitment, regular communication, tenacity, and extensive self-promotion using social media.

If you think crowdfunding may a viable financing solution for your small business, consider the following:

The Benefits Go Beyond Money

“Small businesses use crowdfunding sites such as Indiegogo to not only raise funds, but also to connect directly with their customers,” says Indiegogo co-founder, Danae Ringelmann. “To run a great campaign, small business owners should be clear about what they are seeking to raise money for and actively engage with their funders. “

In addition, crowdfunding can help small businesses to create awareness of their company, receive market validation, obtain customer feedback, prove demand for their brand, and engage directly with potential customers.

You Can Tap Into a Strong Support Network

Resources exist for small business owners who need help getting a crowdfunding campaign off the ground. Lennon’s book offers entrepreneurs a step-by-step guide to creating a successful crowdfunding campaign, and the Small Business Administration (SBA) offers a free online “Crowdfunding for Entrepreneurs” course.

Many crowdfunding sites such as Indiegogo also have dedicated “Customer Happiness” teams available to help small business owners run the best campaign possible.

In addition, Lennon stresses that small business owners need to enlist people who care about your business and will support your campaign every step of the way.

“This can be customers who believe in your business, or peers, friends, and family who will share your crowdfunding campaign on their own Facebook and Twitter accounts,” Lennon says.

Crowdfunding Can Help You Set Achievable Business Goals

Crowdfunding your business idea will help you to set realistic goals and hold you accountable for meeting them.

“Be as specific as possible about why you want to raise money,” Lennon says. “The most successful crowdfunding campaigns that solicit tangible items such as equipment that can help a business grow, or funding to produce a new line of products.”

Lennon also recommends that small business owners create an emotionally compelling video for their crowdfunding campaign.

“Campaigns with videos raise 114% more than those without,” Lennon says. “And videos of successful campaigns don’t focus on what the project is about, they focus on why the project matters, and how those who donate can be a part of this bigger vision.”

It Offers a Chance to Showcase Your Product

On many crowdfunding sites, small business owners can offer “perks” to those who contribute to their campaign. For example, if someone donates $20 to your campaign, you can reward them with a recipe from your restaurant, or for a $50 donation, a gift card to your business.

“Most small businesses that have a reasonable social media presence, with approximately 300-500 Facebook friends, and 100 Twitter followers, can raise $6,700-$7,500 through crowdfunding if they have a solid plan, promote their crowdfunding campaign with regular updates.”


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