5 ways to use crowdfunding to save your small business - Technical.ly

Growth

Apr. 8, 2021 7:27 am

5 ways to use crowdfunding to save your small business

This crowdsourced method of fundraising is more accessible than ever, thanks to new federal regulations. Here's how to think about crafting your message to boost your business.
Small businesses need support.

Small businesses need support.

(Photo by Kaique Rocha from Pexels)

This is a guest post by Joshira Maduro, a research analyst with LendingTree.

Even as states begin to ease pandemic restrictions and increase vaccination efforts, many small business owners are still searching for relief. According to the most recent National Federation of Independent Business COVID-19 Small Business Survey, nearly one in three small business owners are concerned that conditions won’t fully improve until 2022.

Financial safety nets like the U.S. Small Business Administration’s Paycheck Protection Program (PPP) have helped some. But business owners who can’t rely on the PPP program could leverage a long-time staple in the startup world — crowdfunding.

Throughout the pandemic, 74% of small business owners surveyed by LendingTree reported seeking business aid outside of the PPP, with debt averaging $40,733.

Enter crowdfunding. In 2020, regulation crowdfunding, which involves using digital platforms to help you raise money from friends, family or the public, accounted for more than $200 million in funds, a 105% increase from the prior year. In part, this growth may be attributed to fewer traditional lending options — banks, for example, tightened commercial lending standards in response to economic instability. However, the strategy also gained additional appeal in November 2020 when the Securities and Exchange Commission (SEC) made a significant change to non-accredited investor fund limits. These updates made it possible for companies to raise up to $5 million from non-accredited investors (those who don’t meet the SEC’s income and net worth requirements to be accredited), up from the $1.07 million limit established as part of the 2016 JOBS Act.

These new regulations were timely and many businesses took advantage, including the D.C.-based fintech platform, Goodworld. Allowing individuals to invest as little as $1,000 to become a shareholder, it’s raised nearly $30,000 so far.

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Similar stories of success can be found in the retail and restaurant industries. Philadelphia’s historic Reading Terminal Market used crowdfunding to maintain operations and adapt to new safety standards, while a swath of Baltimore restaurants and pubs were able to keep their doors open despite significant financial setbacks.

Thinking about starting your own crowdfunding campaign? Keep these tips in mind.

Analyze financial needs and set goals.

Before you start your campaign, take a hard look at your finances to determine how much capital you need. That may be just enough to get out of debt or funds that anticipate future needs. Then, evaluate your community — online or offline — and be realistic about their ability to contribute. Successful campaigns account for your needs as well as the interests and financial bandwidth of potential investors. If you don’t think you can get enough support, you may want to consider other options like grants that you don’t need to pay back.

Tell your story.

Crowdfunding campaigns rely on everyday individuals for support. That makes your story a major indicator of success. Why is your business suffering? Will investor contributions help save local jobs? Continue a legacy? Support an associated cause? Take time to craft a compelling and honest story that helps your audience understand what’s at stake and explains how their contribution will help your business and the community.

Work with local and community outlets.

Once you have your story in place, share it with your community and potential investors that have the strongest ties to you, your business or your employees. Reach out to your local media outlets, including local news stations, publications, blogs, etc. Doing so will help you gain exposure with an audience that has a vested interest in your success.

Use social media platforms.

Every time a loyal customer or community member shares your campaign on their social media account, your campaign inches toward increased success. How much can a social media presence help? According to Fundly, an online crowdfunding platform, when a backer shares a crowdfunding campaign, the benefactor can see an up to 20% increase in campaign success for every 100 Facebook friends. The same study suggests that owners who make campaign updates every five days can potentially triple the funds raised.

Choose the right crowdfunding platform.

Not all crowdfunding sites are the same. Some like Kickstarter are geared toward startup projects. Others, like GoFundMe, lend themselves to donation-based campaigns, like those used by many restaurants and pubs trying to keep their doors open. There are also platforms like WeFunder, which Goodworld used, that allow businesses to raise funds in exchange for equity stakes.

It’s also a good idea to check rates and fees as well as any restrictions or conditions that apply. Some sites, for instance, won’t allow businesses that promote firearms or tobacco use. Researching various platforms upfront can help you reach your goals faster and avoid unfortunate setbacks in the future.

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Whatever you do, be honest with yourself and your community, create attainable goals and tell your story. When leveraged properly, crowdfunding can help you overcome startup hurdles, keep the lights on, maintain your staff or otherwise lift the financial burdens so many business owners are carrying.

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