When you’re launching a small business, you may not have the same access to startup funds that others do. One of the best ways to source startup capital is using a crowdfunding website. Crowdfunding for a small business is very similar to personal crowdfunding, except companies often exchange products or equity in return for their funds.
Crowdfunding can be a very effective technique for new business owners. Instead of seeking large donations from one or two investors, you can seek smaller donations from hundreds or thousands of people interested in your products and services.
Depending on your goals, certain crowdfunding sites may be better for your business than others. Here’s an overview of the top small business crowdfunding sites for small businesses and startups.
Why try crowdfunding for your small business?
Before the internet made it easy to connect with like-minded people, business owners had to seek funds from investors, banks and family members. While those options are still available, crowdfunding makes it easier to raise funds quickly. Owners don’t need to qualify for a loan, nor do they have to convince investors to give them large sums.
Crowdfunding solicits smaller donations from more people. Business owners might receive “investments” from a single dollar to thousands of dollars—but it all adds up fast. Depending on the type of crowdfunding you choose, these smaller donors might be enticed by a compelling product campaign, promised equity, interest on their investment or rewards for participating.
If you’re having a tough time getting a loan or convincing major investors to fund your startup, crowdfunding can help you achieve your monetary goals. Read on to discover which sites offer the best features and services for your small business campaign.
The 6 best small business funding websites
While there are many small business funding websites, they vary wildly. Here’s an overview of a few of our favorites.
Kickstarter is one of the biggest crowdfunding sites, for both personal and professional endeavors. It’s great for early-stage businesses who need exposure, but its popularity means there’s lots of competition for funds.
This site is best for businesses making consumer products—art, music, tech, food and games are popular campaigns. Most campaigns raise less than $20,000 and include “rewards” for the backer. Keep in mind that rewards should be something easy to ship or deliver electronically.
Kickstarter charges 5 percent of all successfully funded projects, as well as a payment processing fee of 3 to 5 percent. However, if you don’t fund your project during the designated time, you won’t receive any payments. You also will not be required to pay any fees.
GoFundMe is another popular crowdfunding site, whether for personal or professional purposes. This is a donation-based website—business owners don’t need to worry about offering rewards, equity or repaying debt. Because it’s so popular, making sure your campaign is noticed can be tough—but it’s one of the easiest ways to raise funds, with no obligations afterward.
Because there are no rewards, donors may be more reluctant to donate. On the other hand, this is a great option for companies with local community support or a built-in set of followers and supporters.
GoFundMe charges payment processing fees of 2.9 percent, plus 30 cents per transaction. There are no other fees involved, and again, you won’t have to pay money back or send out rewards.
Patreon is popular with content creators, especially if they already have a following. Instead of delivering rewards after a certain funding goal is reached, business owners get paid as they deliver content. This is a particularly popular tool for entertainment-based businesses.
This type of crowdfunding is great for people who offer free content, and would like to give backers the opportunity to support their business, plus receive additional “bonus” content. Owners can choose between three different pricing tiers (“Lite,” “Pro” and “Premium”), which offer different features and benefits.
Patreon charges a minimum of 5 percent of all payments, plus an additional transfer fee when you withdraw your funds. This usually is somewhere around 3 percent.
IndieGoGo is another popular crowdfunding site, which means that it can be difficult to get noticed. However, it helps companies raise funding, even in the early stages, and its structure allows businesses to find new customers.
This crowdfunding site is best for businesses making consumer products, which can be sent as rewards. Backers who have working prototypes (or ready-to-ship products) tend to raise the most money. This site is especially popular with women-owned businesses—nearly half of all successful campaigns have been in this category.
IndieGoGo charges 5 percent on all successful campaigns. You’ll also pay their transaction fee (3 percent plus 20 cents) on every transaction. This is competitive with other sites like Kickstarter and GoFundMe.
If you’re hoping to offer equity, SeedInvest is a great option. Their network of over 575,000 investors typically offers an average of $900,000 per project. The application process is very difficult. Only 2 percent of applicants are approved—which is in line with the large amount of money involved.
This site is best for people who are on their second or third company, although businesses can apply for funding at any stage. Popular industries include e-commerce and real estate, although there’s a wide variety of business types.
SeedInvest’s fees include a 7.5 percent “placement” fee and a 5 percent equity fee, based on what you raise, but if you cannot successfully fund your campaign, you won’t pay anything. As you can see, this is one of the priciest crowdfunding options. However, you’re more likely to raise large sums of money once you get past the vetting process.
Funding Circle is debt-based crowdfunding for small businesses. This company offers loans up to $500,000, raising over $17.5 billion since its inception. Unlike the previous companies on this list, you’ll need good credit plus demonstrable growth in revenue.
If you meet Funding Circle’s requirements—a 660 minimum credit score, although 700 and up is preferable, and two years in business, with at least $120,000 in annual revenue—you can qualify for a quick loan.
Funding Circle charges interest between 4.99 and 27.79 percent, plus origination fees, which range from 3.49 percent to 6.99 percent. Their total APR is between 8.5 and 36 percent. This is comparable to other debt crowdfunding and working capital loans. Review the terms of your loan carefully—it may be less expensive to go through a bank.
How do you get started with crowdfunding?
To get started with any of these crowdfunding sites, find two or three that could be right for your business. Examine the fees and make sure you understand the terms of service. Apply according to the instructions. If approved, you may need to come up with a compelling campaign to attract investors. It’s smart to have some ideas in mind before you apply, so you can quickly launch your campaign.
Get financial support for your small business
Every small business needs a great bank. NorthOne’s small business banking services can help you before, during and after crowdfunding for your small business. We’re dedicated to your success—browse our site to find out more about what we have to offer, and sign up for your small business banking account today.