What is Loan Crowdfunding? And Other Small Business Funding Options
by Fundid on Feb 27, 2023 8:01:53 AM
You may have heard of crowdfunding before, but what is loan crowdfunding? Loan crowdfunding is a type of funding where businesses can borrow money from a group of people rather than just one lender and pay them back with interest. With this type of business funding, you can grow your business without giving away your ownership.
Curious to learn more about this funding to support your business growth? Keep reading to learn more and how you can get your loan crowdfunding campaign started!
What is Loan Crowdfunding?
Loan crowdfunding is an innovative and efficient way for small business owners to secure small business loans. By utilizing an online platform, small businesses can launch campaigns to reach a wide array of lenders who can then invest in the small business. Through this process, small businesses are able to access more capital than they otherwise might not be able to with traditional banking methods.
It also allows small business owners a chance to tell their story and connect on a personal level with investors, creating even more support for their small businesses. By taking advantage of loan crowdfunding opportunities, small business owners can open up new possibilities for growth and expansion that may not have previously been financially viable.
Related Reading: 11 Types of Loans to Grow Your Business
How Does Loan Crowdfunding Work?
Loan crowdfunding is a great way to get the money you need to grow your small business without having to go through a traditional bank. Loan crowdfunding utilizes the power of community to pool together different investors to support your campaign. Think of your customers, friends, and fans who already support your business - they will have the opportunity to invest in your business growth and receive a return on their investment through the interest on the loan.
Depending on the loan crowdfunding platform you use, the loan can be used for anything from expanding a business, buying property, consolidating debt, hiring additional staff, and more.
Fundid Recommendation: Honeycomb Credit provides a platform for growing small business owners, like you, to launch a loan crowdfunding campaign. Your customers and fans chip in as little as $100, you raise the money you need to grow your business, and you pay them back with interest.
Is Loan Crowdfunding a Good Funding Option for my Business?
When considering loan crowdfunding as a source of funding for your small business, one of the best ways to determine whether or not it is a suitable option for you is to look at the advantages and disadvantages. Consider things like repayment schedules, interest rates, and campaign fees so you can get a good idea of what the financial commitment is before getting started.
Additionally, research some of the success stories from other businesses within your sector who have taken on loan crowdfunding in order to see if that type of growth may be feasible for you as well. With loan crowdfunding, there is usually more of a time and marketing commitment to spreading the word about your campaign, so you'll want to make sure you have the bandwidth to dedicate time to it. It's worth considering whether or not a loan crowdfunding platform will help generate more media coverage for your business and increase its visibility.
Finally, make sure that you are comfortable with taking on debt, as this can be an additional stressor if not managed properly. If applied correctly, loan crowdfunding can be an excellent method of expanding your business opportunities and helping set yourself up for success in the long run.
How do I Start a Loan Crowdfunding Campaign?
Starting a loan crowdfunding campaign for your small business can be a great way to get the financial boost you need.
Step 1: Find the best platform to launch your loan crowdfunding campaign
To get started, you'll want to research the best platform to launch a small business loan crowdfunding campaign, like Honeycomb Credit. You'll want to explore their eligibility criteria and the terms of their loan agreement. Review the details carefully to make sure this platform will offer the best solution for your business goals.
Some questions to ask yourself when looking at platform requirements:
- What is the minimum credit score?
- What business structure do they require?
- Do they require a pitch deck or business plan?
- Are your books caught up if they need financial statements?
Step 2: Start the application process
Most loan crowdfunding platforms will have an initial application process to make sure you meet their eligibility requirements. The application process can vary by platform, but most will ask for you to provide basic information such as a:
- The mission of your company
- Financial information like balance sheets, revenue, and business bank account statements
- Your personal credit score
- The amount of funds you are looking to receive
- Project description of how the funds will help your business grow
- How quickly you are looking to obtain the funding
Step 3: Get approved and start your campaign
Once you have been approved, you can start working on your loan crowdfunding campaign! This is the fun part where you get to share your business's story with potential investors for your campaign. You can start spreading the word by harnessing an effective marketing strategy, such as using social media platforms or tapping into your network of peers to garner support.
Crafting a powerful campaign presentation is key to attracting investors. To do this, ensure the mission statement is clear, the information regarding risk and return is provided, and you tell an intriguing story that connects with potential investors. Compiling accurate financial records of your business and displaying these statistics will help to build trustworthiness with investors; include details on how their money is being used too!
Stay organized and persistently update your network on progress. It's important to keep up the momentum through your marketing and social media channels until you reach the goal!
Step 4: Put your money to work!
Once you've reached your goal, you can put that money to work growing your business! These investors believe in you and your business, so make sure to keep your investors updated on your business's progress until they have been repaid. Some crowdfunding platforms will have investor outreach built into their system, and this is something to keep in mind as you are researching different platforms.
Start Your Loan Crowdfunding Campaign with Honeycomb Credit!
Honeycomb Credit is a loan crowdfunding platform built for small business owners. With Honeycomb Credit, you can get a loan to grow your business in as little as 30 days, with no runaround or red tape. Instead of waiting for a big bank to decide if you’re “worthy” of growth, they get your business the fairest possible funding on your own terms.
Your customers and fans chip in as little as $100, you raise the money you need to grow your business, and you pay them back with interest. A Honeycomb campaign strengthens your customer loyalty, gets your business a marketing boost, and helps you grow your revenue by 60% on average!
Who is Honeycomb Credit for:
- Small businesses in food & beverage, health and wellness, and retail industries
- Business owners with at least a 625+ FICO credit score
- Small businesses with at least 250+ social media followers
Ready to start your loan crowdfunding campaign to launch your business growth? Get started with Honeycomb Credit today!
Are There Other Business Funding Options to Grow my Business?
If loan crowdfunding doesn't align with your business growth goals, there are a variety of other small business funding options available that can help you get the additional support you need.
1. Small Business Administration Loan
Another option for business funding is a Small Business Administration (SBA) loan. These loans are backed by the US government and are available to small businesses that may not qualify for a traditional bank loan. The interest rates on SBA loans are typically lower than those of traditional bank loans, making them a good option for businesses with limited financial resources.
2. Business Grants
One option for funding your business is to apply for grants. Grants are typically awarded by the government or foundations to businesses that are working on innovative or important projects. There are many different types of grants available, and you will likely need to meet certain criteria to be eligible for funding.
3. Working Capital Loan
A working capital loan is a type of business loan that can be used to finance the day-to-day operations of your business. This includes expenses such as inventory, payroll, and other operational costs. Working capital loans are typically short-term loans with terms of one year or less.
Fundid Recommendation: We're partnering with Accion Opportunity Fund (AOF), a non-profit financial support system that provides business owners – predominantly entrepreneurs of color, immigrants, and women - with access to capital, networks, and coaching.
AOF working capital loans are ideal for small businesses and sole proprietors that meet the following criteria:
- Annual revenue of at least $50,000
- Located in all U.S. states except Montana, Vermont, Tennessee, North Dakota, South Dakota, and the District of Columbia
- 570+ FICO credit score
AOF has support staff available to help in Spanish and English 7 days a week, 8 am - 8 pm, to guide you through the full process, from application to funding to post-loan approval.
4. Term Loan
A term loan is a type of business loan that can be used for a variety of purposes, such as expanding your business, buying equipment, or financing real estate. Term loans are typically long-term loans with terms of five years or more.
5. Equipment Loan
Equipment financing is a type of loan that is used to finance the purchase of new or used equipment. The funds from an equipment loan can be used to purchase machinery, vehicles, or other types of equipment.
6. Invoice Financing
Invoice financing is a type of loan that is used to finance outstanding invoices. The funds from an invoice financing loan can be used to pay suppliers, employees, or other creditors. Invoice financing is typically repaid when the invoices are paid by the customer