How to Successfully Fund Your Business With Crowdfunding

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You have the perfect idea for a product or service. You’ve done your homework on the market and created a business plan. You might have started operations. But to take your business to the next level, you need funding.

New entrepreneurs often struggle to find financing because most lenders will issue loans only to established companies. However, that doesn’t mean you’re out of luck. Crowdfunding for business capital can provide you with the cash you need to grow your company.

How does crowdfunding for business capital work?

Crowdfunding is a method of gaining money for your business. Rather than going through banks or traditional investors, you tap into friends, family, and other individuals who might be interested in your product or service.

Typically, you post your project online and share it on social media to get more attention (and money). The crowdfunding site gives you a platform to share and promote your product.

Crowdfunding isn’t a loan, and you never have to repay the money. Instead, contributions are more like donations. To thank their supporters, many entrepreneurs offer incentives to donors, such as early access to product launches.

According to the Small Business Administration (SBA), crowdfunding can have other benefits beyond raising money. In the SBA’s report on the current state of crowdfunding, the organization found that crowdfunding can be a useful proof-of-concept tool. If a crowdfunding project gets fully funded and attracts attention, the entrepreneur can use that as evidence of the product’s demand when they talk to traditional investors.

Plus, a successful crowdfunding campaign can get publicity for your product. Some campaigns go viral and get attention on news websites and blogs, which can help drive sales.

There are many crowdfunding sites you can use to raise money, including:

8 tips to encourage users to invest in your company

Although crowdfunding can be an excellent way to make money, it’s more challenging than you might think. You can’t just create a project and post it online and expect results; it requires a lot of work.

Here’s how you can encourage donors to contribute to your campaign:

  1. Look at successful campaigns: Before you write a draft of your project, take the time to research successful crowdfunding campaigns. Look for what those entrepreneurs did well, such as design, thoroughness of information, and valuable donor incentives.
  2. Share your plan: Your campaign should feature a thorough business plan that highlights your market research, competitive analysis, financial forecasts, and expected returns. This is your chance to showcase what makes your product different and why it’s such a great idea.
  3. Have a professional image: To succeed, your campaign needs to look polished and professional. You might want to hire a graphic designer to create a logo and graphics for you, and it’s smart to hire an editor or copy editor to review the copy and ensure it’s as persuasive as possible.
  4. Plan a marketing campaign: Setting up a crowdfunding campaign doesn’t guarantee returns. To increase your chances of hitting your goals, build a marketing plan to promote it. Draft social media posts, create graphics and videos, and develop a list of media contacts and social media influencers who might be interested in your product.
  5. Tell your story: Donors need to believe in you, not just your product. Create a section that describes your background, education, work experience, and how you came up with your product or service concept.
  6. Demonstrate your commitment: Many contributors want to see that you’ve invested your own money into the company. If you aren’t financially committed to your business, why should they donate to you? In your campaign, list how much you’ve invested and the sacrifices you’ve made to make your dream a reality.
  7. Boast about achievements and progress: You can encourage new donors by posting about your achievements and the progress you’ve made. For example, if the United States Patent and Trademark Office granted you a patent or you successfully created a working prototype of your design, share that on your campaign site.
  8. Share with everyone: Once your crowdfunding campaign is up and running, share it with everyone you know, including friends, family, and business contacts. You also can reach out to other professionals in your industry to see if they’d be willing to share it.

Drawbacks to crowdfunding

Crowdfunding can be a useful source of business financing, but there are some drawbacks to this approach:

  • You might not get the money donors pledged: On some crowdfunding platforms, such as Kickstarter, the campaigns are all-or-nothing. If you receive some pledges but don’t reach your funding goal, you don’t get any of the money. You can access the funds only if you hit your goal.

  • There’s no guarantee it’ll work: You can do everything right with your listing but still fall short of your goal. Crowdfunding isn’t a secure source of funding.

  • The pressure is on: If your campaign meets its funding goal, you can access the funds. But you’ll also be subject to intense pressure. Your contributors (from those who donated $10 to those who donated $10,000) will expect regular updates and progress reports. If you fail to deliver, the backlash can be severe.

3 alternative sources of funding

If you need a more secure source of financing, crowdfunding might not be for you. To get the money you need to grow your business, consider these three funding alternatives.

1. SBA loans

Many banks, credit unions, and financial institutions offer business loans through the SBA. Depending on your needs, you could borrow as much as $5.5 million. You can use this money to expand your inventory, buy new equipment, or even set up your office. As an added perk, business loans are separate from your personal finances.

Use our eight-step guide to SBA loans to get the funding you need.

2. Personal loan

If you don’t qualify for a business loan, consider applying for a personal loan. Personal loans tend to be easier to get than business loans, and you can get your money in days instead of weeks or months.

Most personal loans are unsecured, meaning you don’t have to put up any assets as collateral. Although personal loans have lower maximums than business loans, you could get up to $100,000 for your business needs. Plus, if you have good credit, you could qualify for a low-interest personal loan and save money over the length of your repayment term.

3. Credit cards

If you need access to credit regularly rather than for a one-time purchase, getting a new credit card might be a better choice than taking out a loan. Credit cards are revolving debt rather than fixed debt. That means you can continually use your credit line. As long as you keep up with your payments, you can use your credit card for years to pay for your ongoing business needs.

Launching a business

Finding financing is one of the toughest aspects of starting a business. Although crowdfunding for business capital can work for some people, it’s wise to pursue several funding options so you can meet your goals.

If you have an idea for a product or service but don’t know where to start, learn how to start a business in just four steps.

Interested in a personal loan?

Here are the top personal loan lenders of 2018!
LenderAPR RangeLoan Amount 
1 Includes AutoPay discount. Important Disclosures for SoFi.

SoFi Disclosures

  1. Personal Loans: Fixed rates from 6.990% APR to 14.865% APR (with AutoPay). Variable rates from 6.255% APR to 12.555% APR (with AutoPay). SoFi rate ranges are current as of September 1, 2018 and are subject to change without notice. Not all rates and amounts available in all states. See Personal Loan eligibility details. Not all applicants qualify for the lowest rate. If approved for a loan, to qualify for the lowest rate, you must have a responsible financial history and meet other conditions. Your actual rate will be within the range of rates listed above and will depend on a variety of factors, including evaluation of your credit worthiness, years of professional experience, income and other factors. See APR examples and terms. Interest rates on variable rate loans are capped at 14.95%. Lowest variable rate of 6.255% APR assumes current index rate derived from the 1-month LIBOR of 2.08% plus 4.425% margin minus 0.25% AutoPay discount. For the SoFi variable rate loan, the 1-month LIBOR index will adjust monthly and the loan payment will be re-amortized and may change monthly. APRs for variable rate loans may increase after origination if the LIBOR index increases. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account.

    To check the rates and terms you qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull.See Consumer Licenses.
  2. Minimum Credit Score: Not all applicants who meet SoFi’s minimum credit score requirements are approved for a personal loan. In addition to meeting SoFi’s minimum eligibility criteria, applicants must also meet other credit and underwriting requirements to qualify.
  3. SoFi Personal Loans are not available to residents of MS. Maximum interest rate on loans for residents of AK and WY is 9.99% APR, for residents of IL with loans over $40,000 is 8.99% APR, for residents of TX is 9.99% APR on terms greater than 5 years, for residents of CO, CT, HI, VA, SC is 11.99% APR, and for residents of ME is 12.24% APR. Personal loans not available to residents of MI who already have a student loan with SoFi. Personal Loans minimum loan amount is $5,000. Residents of AZ, MA, and NH have a minimum loan amount of $10,001. Residents of KY have a minimum loan amount of $15,001. Residents of PA have a minimum loan amount of $25,001. Variable rates not available to residents of AK, TX, VA, WY, or for residents of IL for loans greater than $40,000.
  4. Terms and Conditions Apply: SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet SoFi’s underwriting requirements. Not all borrowers receive the lowest rate. To qualify for the lowest rate, you must have a responsible financial history and meet other conditions. If approved, your actual rate will be within the range of rates listed above and will depend on a variety of factors, including term of loan, a responsible financial history, years of experience, income and other factors. Rates and Terms are subject to change at anytime without notice and are subject to state restrictions. SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. Licensed by the Department of Business Oversight under the California Financing Law License No. 6054612. SoFi loans are originated by SoFi Lending Corp., NMLS # 1121636. (www.nmlsconsumeraccess.org)

2 Includes AutoPay discount. Important Disclosures for Payoff.

Payoff Disclosures

  1. All loans are subject to credit review and approval. Your actual rate depends upon credit score, loan amount, loan term, credit usage and history. Currently loans are not offered in: MA, MS, NE, NV, OH, and WV.

3 Important Disclosures for FreedomPlus.

FreedomPlus Disclosures

  1. All loans available through FreedomPlus.com are made by Cross River Bank, a New Jersey State Chartered Commercial Bank, Member FDIC, Equal Housing Lender. All loan and rate terms are subject to eligibility restrictions, application review, credit score, loan amount, loan term, lender approval, and credit usage and history. Eligibility for a loan is not guaranteed. Loans are not available to residents of all states – please call a FreedomPlus representative for further details. The following limitations, in addition to others, shall apply: FreedomPlus does not arrange loans in: (i) Arizona under $10,500; (ii) Massachusetts under $6,500, (iii) Ohio under $5,500, and (iv) Georgia under $3,500. Repayment periods range from 24 to 60 months. The range of APRs on loans made available through FreedomPlus is 4.99% to a maximum of 29.99%. APR. The APR calculation includes all applicable fees, including the loan origination fee. For Example, a four year $20,000 loan with an interest rate of 15.49% and corresponding APR of 18.34% would have an estimated monthly payment of $561.60 and a total cost payable of $7,948.13. To qualify for a 4.99% APR loan, a borrower will need excellent credit on a loan of $15,000 with a term of 24 months, and qualify for at least two of the following discounts: (1) add a co-borrower who has sufficient income; (2) use at least fifty percent of the loan proceeds to directly pay off existing debt; or (3) show proof of having at least forty-thousand dollars in retirement savings – contact FreedomPlus for further details.

4 Important Disclosures for Citizens Bank.

Citizens Bank Disclosures

  1. Personal Loan Rate DisclosureFixed interest rates from 6.49% – 19.49% (6.49% – 19.49% APR) based on applicable terms. Lowest rates range from 5.99%-18.99% (5.99%-18.99% APR), are for eligible applicants, require a 3-year repayment term, and include our Loyalty and Automatic Payment Discounts of 0.25 percentage points each, as outlined in the Loyalty Discount and Automatic Payment Discount disclosures. Subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change.
  2. Loyalty Discount: The borrower will be eligible for a 0.25 percentage point interest rate reduction on their loan if the borrower has a qualifying account in existence with us at the time the borrower has submitted a completed application authorizing us to review their credit request for the loan. The following are qualifying accounts: any checking account, savings account, money market account, certificate of deposit, automobile loan, home equity loan, home equity line of credit, mortgage, credit card account, student loans or other personal loans owned by Citizens Bank, N.A. Please note, our checking and savings account options are only available in the following states: CT, DE, MA, MI, NH, NJ, NY, OH, PA, RI and VT. This discount will be reflected in the interest rate and Annual Percentage Rate (APR) disclosed in the Truth-In-Lending Disclosure that will be provided to the borrower once the loan is approved. Limit of one Loyalty Discount per loan, and discount will not be applied to prior loans. The Loyalty Discount will remain in effect for the life of the loan.
  3. Automatic Payment Discount: Borrowers will be eligible to receive a 0.25 percentage point interest rate reduction on their Citizens Bank Personal Loan during such time as payments are required to be made and our loan servicer is authorized to automatically deduct payments each month from any bank account the borrower designates. If our loan servicer is unable to successfully withdraw the automatic deductions from the designated account two or more times within any 12-month period, the borrower will no longer be eligible for this discount.

5 Important Disclosures for LendingPoint.

LendingPoint Disclosures

  • Loan approval is not guaranteed. Actual loan offers and loan amounts, terms and annual percentage rates (“APR”) may vary based upon LendingPoint’s proprietary scoring and underwriting system’s review of your credit, financial condition, other factors, and supporting documents or information you provide. Origination or other fees from 0% to 6% may apply depending upon your state of residence. Upon LendingPoint’s final underwriting approval to fund a loan, said funds are often sent via ACH the next non-holiday business day. LendingPoint makes loan offers from $2,000 to $25,000, at rates ranging from a low of 15.49% APR to a high of 34.49% APR, with terms from 24 to 48 months. The loan offer(s) shown reflect a 28 day payment cycle which is being offered as a courtesy as many of our customers are paid on a biweekly schedule and thus this may better align the loan payment dates with your actual income receipt schedule.

6 Important Disclosures for LendingClub.

LendingClub Disclosures

All loans made by WebBank, Member FDIC. Your actual rate depends upon credit score, loan amount, loan term, and credit usage & history. The APR ranges from 6.16% to 35.89%. For example, you could receive a loan of $6,000 with an interest rate of 7.99% and a 5.00% origination fee of $300 for an APR of 11.51%. In this example, you will receive $5,700 and will make 36 monthly payments of $187.99. The total amount repayable will be $6,767.64. Your APR will be determined based on your credit at time of application. The origination fee ranges from 1% to 6% and the average origination fee is 5.49% as of Q1 2017. There is no down payment and there is never a prepayment penalty. Closing of your loan is contingent upon your agreement of all the required agreements and disclosures on the www.lendingclub.com website. All loans via LendingClub have a minimum repayment term of 36 months or longer.


7 Important Disclosures for Earnest.

Earnest Disclosures

  1. Earnest does not lend in Alabama, Delaware, Kentucky, Nevada, or Rhode Island.

8 Important Disclosures for Avant.

Avant Disclosures

* The actual rate and loan amount that a customer qualifies for may vary based on credit determination and other factors. Funds are generally deposited via ACH for delivery next business day if approved by 4:30pm CT Monday-Friday. Avant branded credit products are issued by WebBank, member FDIC.

** Example: A $5,700 loan with an administration fee of 4.75% and an amount financed of $5,429.25, repayable in 36 monthly installments, would have an APR of 29.95% and monthly payments of $230.33


* Important Disclosures for Upgrade Bank.

Upgrade Bank Disclosures

* Your loan terms are not guaranteed and are subject to our verification and review process. You may be asked to provide additional documents to enable us to verify your income and your identity. This rate includes an Autopay APR reduction of 0.5%. By enrolling in Autopay your payments will be automatically deducted from you bank account. Selecting Autopay is optional. Annual Percentage Rate is inclusive of a loan origination fee, which is deducted from the loan proceeds. Late payments or subsequent charges and fees may increase the cost of your fixed rate loan. All loans made by WebBank, member FDIC. Please refer to Upgrade’s Terms of Use and Borrower Agreement for all terms, conditions and requirements.

** Accept your loan offer and your funds will be sent to your bank via ACH within one (1) business day of clearing necessary verifications. Availability of the funds is dependent on how quickly your bank processes this transaction. From the time of approval, funds should be available within four (4) business days.

7.73% – 29.99%$1,000 - $50,000Visit Upstart
6.26% – 14.87%1$5,000 - $100,000Visit SoFi
6.99% – 35.97%*$1,000 - $50,000Visit Upgrade
8.00% – 25.00%2$5,000 - $35,000Visit Payoff
4.99% – 29.99%3$10,000 - $35,000Visit FreedomPlus
5.99% – 18.99%4$5,000 - $50,000Visit Citizens
15.49% – 34.49%5$2,000 - $25,000Visit LendingPoint
6.16% – 35.89%6$1,000 - $40,000Visit LendingClub
6.99% – 18.24%7$5,000 - $75,000Visit Earnest
9.95% – 35.99%8$2,000 - $35,000Visit Avant
Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality and will make a positive impact in your life. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print understand what you are buying, and consult a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time. Please do your homework and let us know if you have any questions or concerns.