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The Truth about Business Crowdfunding (what they don’t tell you)

The Truth about Business Crowdfunding (what they don’t tell you)

It takes money to make money, and business crowdfunding is a modern way for entrepreneurs to raise money. Unless you start a work-from-home, blogging or online business and use these free tools, you will have startup expenses and overhead.

Even if you start a business with little or no money, you will eventually grow and want more scalability.

So you’re back to square one with needing business funds.

Small businesses without the right credit history, reputation and connections used to have few options to access capital. The digital wave and constant updates to the way we do business has changed that.

Shark Tank sparked a revolution of contests and pitching fundraisers across the globe.Venture capitalists, angel investors and celebrities made ways for entrepreneurs to get a jump start. A well-crafted funding pitch event can be a great opportunity and learning experience.

That’s not the only way for newbies in business to get a breakthrough. Crowdfunding is the easiest and most accessible means of getting money to start or grow your business.

What is business crowdfunding?

Crowdfunding is nothing new. It’s an old practice under a different term.

In a Dreamer’s Den podcast interview, Sarah Olivieri of PivotGround will tell you this funding method has been a part of the non-profit world for ages.

So what is crowdfunding?

It is simply asking individuals to contribute money to your cause or goal.

Together, the crowd will help you reach your monetary target.

Think of the church building fund they set up right after building the first church. You see it every time the trustees color in another block on their graph chart. It happens when people from the crowd or congregation have dropped a building fund donation in the collection plate.

Business crowdfunding is an alternative investing or lending method. It’s a way to gather those dollars from many to equal your total funding need (or at least a portion of it).

Those who couldn’t or wouldn’t help you by investing a lump sum have a chance to pitch in a smaller amount toward it.

Getting help from the crowd will hopefully keep you on a similar timeline as using one investor or lender.

It sounds easy right? Well, I’m probably not the first to break it to you, but I’ll say it again anyway.

Nothing about business is easy. It’s only different or non-conventional. Even when a crowdfunding company whispers sweet nothings, don’t fall for it.

Crowdfunding is no piece of cake. These are some things they won’t tell you, or at least not in full.

The truth about business crowdfunding (what they don't tell you)

The whole truth about business crowdfunding

1. You will work to earn every dollar you raise

In the words of the greatest rapper of all times, “if you don’t move your feet, then you don’t eat.”  It starts with selling the company and prospective lenders/donors with your content.

You will need to complete an application and write a compelling bio—high quality photos included. It’s a key part of the strategy that convinces supporters to dig deep down in their pocketbooks.

Fundraising of this type requires selling yourself daily. It’s no different from any other sells and marketing campaign. You have to motivate people to take action.

If crowdfunding is part of your business investment strategy, get ready to:

  • Send out texts, DMs and emails
  • Make phone calls reaching out to family, friends and loved ones
  • Post your progress on social media
  • Engage potential investors on the crowdfunding platform
  • Make in-person visits and prospect
  • Meet deadlines

2. Crowdfunding can affect your credit

This is something the website may or may not tell you. It also only applies to crowdfunding setups that use the lending method.

During the application process, some companies won’t do review your credit history in depth. They will view the surface information, like creditors who use a pre-approval process.

If things look good with your payment history, it’s a good chance you will qualify to pitch for a business crowdfunding loan.

The platform will also look at the amount of outstanding debt you have. This helps them decide whether to approve the amount of funds you are requesting to raise.

If they don’t approve the full amount, they may offer to allow you to raise a lower amount.

During the repayment step, the company will report activity on your business credit report. That goes for positive or negative activity.

If you are not familiar with building business credit, see Dun and Bradstreet, the most trusted company for business data.

3. Some crowdfunding platforms ask your contributors for more money

This money doesn’t go to you either. Not knocking their hustle. After all, when they prosper, entrepreneurs have a chance to thrive.

You just don’t need this tactic catching you or your supporters off guard.

Some platforms, like those who operate as a non-profit, may add an optional fee to the contribution to cover operating expenses.

They can remove this charge and only contribute to the crowdfunding.

4. Not all funds are free and clear

Different crowdfunding sites have different rules, but most of them will cost you. Some take a percentage of your business funds before turning them over to you. Others may make your wait a few days or weeks before you get the proceeds.

Some platforms consider the crowdfunding money a loan. You will have loan terms and make payments to the platform. Money from the loan payments won’t go to the crowdfunding companies. A portion of each payment goes back to the lender each month.

5. Some crowdfunding sources like to play dirty

Make sure you read the fine print and ask plenty of questions before you sign up for crowdfunding. Keep the communication going throughout the process. Some sites also use cut-throat strategies to keep your lenders’ money during the repayment phase.

If your contributors’ account doesn’t maintain regular activity, it will become inactive. Any proceeds from repayments still left in the account will return to the organization.

In other words, they must continue lending to other businesses or make sure they can transfer the funds they were repaid within the active period.

If you still want to pass go after learning some pros and cons of crowdfunding, choose the right platform. Several crowdfunding companies have a solid reputation in the industry, including the ones below:

You can also always skip the platform and go it alone

We use merchants like PayPal, Stripe and the infamous Cash App all the time. These make it easy to collect payments from those who believe in you and want to see your business grow.

You won’t get the support of those on the back end pushing your campaign to the forefront. On the plus side, you also will not deal with their terms and conditions, fees and other snags along the way.

Need help with your crowdfunding campaign or want to brainstorm about getting money for your business?

Click work with me above to get on my calendar!

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