Here are four different types of crowdfunding options that you might want to consider instead of traditional bank loans. You can use most of these loans for any type of project, creative, charity or otherwise.
1. Rewards Based
This type of crowdfunding means that backers contribute to your fund and you give them a reward. Rewards can be as simple as a thank you note, and as big as you want based on the level of gift giving.
It can be the actual product you’re raising funds for too. For example, if you’ve created a new widget that you think people will love but you need more funds to bring your beta to the next level, you can offer the beta in exchange for a donation that you then use to fund your next version. Consider Patreon.com.
2. Donation Based
In this case, donors only donate out of the goodness of their hearts. This is often used to raise funds for start-ups that are special in some way, such as a nonprofit that helps people or a business that saves animals. If you’re doing good in the world, consider doing a donation-based campaign.
This can work well for even a restaurant. For example, if you’re starting the first ever vegan restaurant in your area, or locally sourced food only in your area, it’s a good way to find out if your community will support the idea or not. Consider GoFundMe.com as an option.
3. Equity Based
In this case, when investors send money to one of the campaigns, they don’t get a reward. Instead, they own part of the business. You set the amount of equity you’ll give up based on how much people invest.
It’s important before you start giving away equity in your business that you consult with lawyers to help you write up the paperwork, so that each investor knows what they’re getting. This is because all investments are real legal investments and not donations in this case. Look at AngelList.co and Crowdfunder.com
4. Debt Based
For this option, investors lend money to the person doing the crowdfunding campaign and they expect to be paid back with interest. In some cases, there is no interest and only the amount loaned is expected to be paid back.
In this case, you want to look closely at whether you think you can pay back the money. This works with start-up funding and operating funding, but ensure that you can pay it back as it’s a legal loan that can affect your credit even if they don’t check your credit. Look at Kiva.org.
Crowdfunding is a great way to get the money together for your next idea. You don’t have to use a traditional bank. The great thing is that for many of the options out there, you can start free and you only pay a percentage of your gains to the company that helps you.