As banks have tightened terms over the last few years, alternative loans are quickly gaining in popularity. So much so that banks are noticing the competition, and starting to loosen their belts. Crowdfunding is one of the newest alternative loans, which are very similar to peer to peer loans. Our friends at Intuit have designed a great graphic detailing everything you’d want to know about Crowdfunding:
What is Crowdfunding?
Crowdfunding is a term used to describe individuals coming together to support — and directly fund — projects by other individuals and organizations. For small businesses and startups, crowdfunding can be an engine for job creation and development.
The Evolution of Crowdfunding
The concept of crowdfunding isn’t entirely new. It’s come about thanks to a progression of other funding ideologies, i.e. microfinancing, microlending, peer-to-peer lending.
The Nuts and Bolts
Prospective and established small business owners can use crowdfunding platforms to jump start their next project. Three models of crowdfunding:
- Donations, philanthropy and sponsorship
The Pros and Cons
Pros: a platform that also serves as a marketing tool, provides a forum for feedback on the project, relatively inexpensive way to raise funds.
Cons: Often limited on amount of funding you can raise; exposes project to the public, risking copycats; funds may be subject to securities regulation.
Does it Work?
At a glance, as of April, 2011: $53 million was pledged, $40 million was collected, and 20,371 projects. 43% of all projects are successful, 52% of projects with one pledge succeed, 90% of projects that reach 1/3 of needed funding succeed, and 21 percent of projects don’t receive any pledges.
How to get Crowdfunding
Chose the right site for you
- : Some sites have focus such as arts or nonprofits. Find the one that fits your business.
Set a realistic target and time limit: Asking for too much or too little can affect your project’s chances of success.
Create a campaign video: A personal touch pays off. Projects with videos outperform those without by 125%.
Post regular campaign updates: Keep supporters engaged and maintain momentum.
Connect with friends and family first: Begin with word of mouth among your inner circle, then promote your campaign on social media.
Offer Rewards: Supporters may be more eager to back you if you offer a small incentive.