Are you thinking about starting a business? Or thinking of expanding your thriving business? As many small business owners have learned, finding financial support is not always easy. Even a business with a great idea and a fantastic business plan may have a hard time securing needed funds.
This explains why a lot of small businesses have chosen to go with ‘crowdfunding’. This popular method of raising funds for a new or expanding business, to take advantage of a great real estate investment, or to begin work on a new project, is so popular right now that many websites are already devoted to the idea of crowdfunding.
What Is Crowdfunding?
Most people typically secure funding from a single private lender, who then holds a large stake in the small business. With crowdfunding many people help fund the business, and many people have small stakes in the business. Online sites help entrepreneurs find people who are willing to help them – financially – get their business started.
Although some investors are leery of crowdfunding, many others find that it is a great way to get the seed money to start their business. Capital investment from a number of people is often more successful than investment from a single source.
The JOBS Act
The Jumpstart our Business Startups Act (JOBS), signed by President Barack Obama, offers small companies a source of easy funding to get their small businesses up and running. The JOBS bill is designed to stimulate the economy through new businesses. One main component of this bill is that it allows entreprenuers to use crowdfunding without going through a public offering. Up to a million dollars a year can be raised without having to register state-by-state.
Before the creation of the JOBS Act, any business that wanted to franchise needed to secure funds from accredited sources approved by the Securities Exchange Commission (SEC), or through angel investors. This old way gave a significant advantage to wealthy people with lots of money to invest. The JOBS program, by allowing small business owners the opportunity to use crowdfunding, has allowed more people to invest in a business they truly believe in.
The SBA And The SEC
The Small Business Administration has been listening to small business owners about their need for easy access to funds to start or expand their business. The SBA understands how hard it is for anyone to find needed capital in the current financial market.
The SBA constantly watches over the market to ensure that every business is successful. They feel that crowdfunding is a great way for entreprenuers and investors to join together for a common cause. Most small businesses are funding by those in their local community.
The U.S. Securities and Exchange Commission is currently working on regulations dealing with crowdfunding. S corporations, having a 100 shareholder limit, might not be able to take advantage of crowdfunding. However, C corporations will have full advantage of crowdfunding. SEC regulations may change over time, and will be a hot topic of conversation in both public policy exchanges and the business world.
About a third of all new business use no capital funds to begin with. They either use their own personal savings, or borrow from family and friends.
Crowdfunding is a way for those with no savings, or family to fall back on, to acquire the funds needed to start a business. Crowdfunding, also called crowdsourcing, offers new business owners a way to get creative on their repayment terms, and also allows for lower interest rates.
Although not a new concept, crowdfunding has not yet gone completely mainstream. Now is a great time to get into this new way of securing business funds. Whether you need money to get your art project, book, CD, or ‘awesome new product’ up and running, crowdfunding connects you to the people who will give you feedback, funds, and may even order your product before you’ve made the first one.
Besides helping you raise the capital you need to get started, crowdfunding gives you a large network of supporters in your business. If you offer your investors equity in your business, they will become your personal ambassadors, promoting your business in order to increase their own holdings. Free advertisement and loyal customers are a beneficial asset to any company.
Promoted in the right way, crowdfunding can also help you make people more aware of your particular business. Take your crowdfunding idea to your local press, newspaper or television station, and they may be able to help you attract more potential investors than you ever thought possible. If potential investors and clients see you highlighted in the public’s eye, they may be more inclined to check out your business. That is what crowdfunding can do for you, it brings investors and clients right to your doorstep to see what you have to offer.