Crowdfunding versus A Small-Business Loan

Crowdfunding versus A Small-Business Loan

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While crowdfunding is a fairly new business-funding channel, it has seen the success of more than a few products. Nowadays, crowdfunding sites like Kickstarter and Indiegogo are among the most visited business-related sites in the country and these sites are bringing in large amounts of money for the entrepreneurs willing to ask for funds.

However, not all businesses that are propelled by crowdfunding actually take off. According to statistics released by Kickstarter, most campaigns which benefit from the power of crowdfunding do not go on to launch. Things are even worse at Indiegogo, where only about 1 in 10 fundraising projects reach their intended goal.

So, the question remains: is crowdfunding really right for your startup?

Graham Gori, the owner of Portico Latin Bistro & Cantina in Langley, Washington raised $16,000 from Kickstarter late last year. The success of his campaign came as a result of:

  • Extensively studying the market to see if there was a significant need for his type of business.
  • Mobilizing friends and family for marketing, which included an intuitive promotional video.
  • Creating awareness of the campaign on social media as well as in the streets, where a local magazine and newspaper did articles on his campaign.

Although Graham’s experience is proof that crowdfunding can work for your startup, building a successful campaign requires time and overwhelming effort. If you are deficient in either one of these things and you have enough faith in your business, you will be better off with a small business loan instead.

Banks and credit unions are a good crowdfunding alternative, especially if you have good credit or a viable asset which you can place as collateral. If not, online lenders like OnDeck and Kabbage may be good options to fund your small business.

Among the financial problems startup businesses face is unsustainable cash-flow. To offset this unfortunate inconvenience, you may want to consider merchant cash advance providers like First American Merchant, which offer capital in exchange for a percentage of future sale returns until the loan is repaid.

Crowdfunding is a fun and promising way to fund your small business, but it is important to explore every available funding option so that you can determine what is best for you and your business. When done well, a crowdfunding campaign can blow past your expectations.

Nonetheless, the safest way to go is to have an alternative plan in place as a fallback, just in case.