See how we can help

Get started online


Written By:
Myles Robinson - Expert Finance Advisor

Posted: Jan 4, 2023

Fact Checked By:
David Nicholson - Finance Editor

What does Crowdfunding mean for businesses?

Crowdfunding platforms and peer-to-peer lending platforms are great options for financing your business. Although a crowdfunding campaign is more flexible than traditional financing options, a crowdfunding platform can be time-consuming.

Businesses may find it difficult to get funding when they are trying to raise money.

Businesses may need to consider alternative funding routes when they are in their early stages to raise capital.

The crowdfunding platform has become more popular in recent years, as more businesses turn to crowdfund instead of traditional lenders when they need to raise capital.

Looking to raise capital? Let the experts do it for you

We have access to over 200 lenders in the UK to get you the best rates

Get your Quote

What is crowdfunding?

Crowdfunding is, as the name implies, the process of sourcing financing from a group of people or organizations, Donation-based crowdfunding to raise funds. Crowdfunding campaigns are a way for individuals and businesses to raise money from large numbers of people.

Donation-based crowdfunding for raising money has grown in popularity over the past 10-15 years. Social media and online services have made crowdfunding platforms more popular. Crowdfunding sites connect people or businesses who need funding with people who are looking for money to help fund projects, ideas, and enterprises.

This can be done via crowdfunding websites or crowdfunding platforms. Businesses can ‘pitch’ their idea, project or business and offer equity crowdfunding rewards or returns for those who invest or lend money.

A business receives donation-based crowdfunding from many different investors or lenders, instead of one entity like a bank.

getquote url=”/contact/”] 

Different types of crowdfunding

There are many types of crowdfunding to raise money. To have a successful crowdfunding campaign you need to choose the best option for your and your business venture.

Crowdfunding based on debt

Businesses can set their own amount and case for borrowing money through debt-based crowdfunding, also known as peer-to-peer (P2P), business lending.

The interest rate and risk level are set by the crowdfunding platform or P2P platform. Each investor or lender who uses the service decides how much they would like to invest and what return they expect. The matching process involves lenders and businesses, with the business paying monthly interest to repay their lenders.

Equity-based crowdfunding

The same principle applies to investment-based and equity-based crowdfunding. Investors receive a share of the business in exchange for their investment. They also have the option to share in any profits if the company is sold or floated on stock markets.

Crowdfunding that rewards you

Rewards-based crowdfunding is another option. In this case, investors and lenders get a product or service in return for funding.

The Financial Conduct Authority regulates equity-based and debt-based crowdfunding, but rewards-based crowdfunding does not. This is because only the payment services are covered.

Donation-based crowdfunding is another option. This allows individuals to give money to help start-ups grow but not to receive anything in return.

getquote url=”/contact/”] 

How to create a crowdfunding page

You will need to create a page on a crowdfunding site in order to get started with crowdfunding.

Investors and lenders will see your page to find out how much you are looking for, and what you plan to do with it. It should also contain a marketing presentation that explains the benefits of your idea or project. A short, engaging and accessible video presentation could be included.

Each platform will have its own rules, fees, and criteria. Some platforms may also specialize in particular markets. It is important to evaluate different platforms and find the one that suits your needs best.

What are the advantages & disadvantages of crowdfunding?

Crowdfunding has a broad appeal. It allows individuals and businesses to eliminate the middlemen (i.e. crowdfunding allows individuals and businesses to bypass banks and building societies and instead go directly to people who are looking for interest or returns in return for the money they give to companies and/or projects.)

Crowdfunding can be more flexible than traditional funding options and often cheaper, making it easier to obtain funds. Crowdfunding can also be used for marketing and promotion for your company.

It’s not always easy to get funding. You may need to make a compelling business case and be able to answer questions from potential investors.

Different platforms may have different requirements or restrictions. These can restrict the choices available.

Every type of crowdfunding has its advantages and disadvantages.

Equity-based crowdfunding, for example, gives investors a stake and, by extension some degree of control over future business decisions.

You don’t give up any business ownership in debt-based crowdfunding or P2P crowdfunding. However, if you can’t repay the loan, there are risks to your credit rating.

getquote url=”/contact/”] 

What other funding options are available for my business?

There are many funding options available for businesses. These include traditional business loans and start-up loans, government grants, roll credit facilities, assets financing, and angel investors. Angel investors might invest in your company in return for a small share and mentoring.

Each option has its own set of criteria and advantages and disadvantages. It all depends on your personal circumstances.

How do I compare business loans

This is why we are here, contact us today and we can give advice on the business loan options and which business loan would work best for you.

Many comparison sites offer a business loan table that tells you how much each provider can lend, what terms are available, and the interest rate. While the interest rate can give you an idea of the different providers, it is important to remember the fact that the rate you will be offered will depend upon factors like the length of the loan, the amount you borrow, and your credit history.

We would put you in touch with the best lender for you, this could save you time and money so contact us now to get started.

getquote url=”/contact/”]