What is Crowdfunding

Crowdfunding is the process of funding a venture or project by raising small amounts of money from a large number of people. Crowdfunding for startups is a common practice, and it’s also often used by inventors, entrepreneurs, musicians, filmmakers, artists, and charities. There are many types of crowdfunding available. Let’s take a quick look at four of the main ones. 1. Donation-Based Crowdfunding, 2. Reward-Based Crowdfunding, 3. Equity-Based Crowdfunding & 4. Peer-to-Peer Lending base crowdfunding.

Donation-Based Crowdfunding

This form of crowdfunding is when supporters or contributor freely donate money without any reward or monetary incentive. As a result, donation-based crowdfunding is usually employed by charitable causes, there is no financial return to the donor or contributors, donation-based crowdfunding initiatives include fundraising for disaster relief, charities, nonprofits, and medical bills etc.

Reward-Based Crowdfunding

This is one of the most popular forms of crowdfunding, Reward-based crowdfunding is when people pledge money in exchange for a certain benefit or package. Offering a range of rewards allows crowdfunders to maximize the amount of money they’re able to raise by appealing to all levels of interest. Rewards-based crowdfunding involves individuals contributing to your business in exchange for a “reward,” typically a form of the product or service your company offers. Even though this method offers backers a reward, it’s still generally considered a subset of donation-based crowdfunding since there is no financial or equity return. This approach is a popular option here on Fundable, as well other popular crowdfunding platforms, because it lets business-owners incentivize their contributor without incurring much extra expense or selling ownership stake.

Equity-Based Crowdfunding

This is when an investor receives a portion of the company in return for their investment. Equity-based crowdfunding enables people to become part owners of the project or venture – sharing both the risks and rewards. The investor can also sell their share of the company in the future. Unlike the donation-based and rewards-based methods, equity-based crowdfunding allows contributors to become part-owners of your company by trading capital for equity shares. As equity owners, your contributors receive a financial return on their investment and ultimately receive a share of the profits in the form of a dividend or distribution.

Peer-to-Peer Lending crowdfunding

Peer-to-peer crowdfunding enable people to borrow money outside of traditional bank loans. It’s great for lenders too. Those willing to take the risk can easily build a portfolio of loans that often pay higher rates of interest than banks.Peer to Peer business lending is a fast and accessible way of getting a cash injection into your business. The essential difference between Peer to Peer lending and crowdfunding is that you do not give away any equity, but rather pay interest on the money you borrow — much like you would with a bank loan. Peer to Peer loans are thought to be better suited to established businesses who can service their monthly loan repayments. Whether you need a loan to buy a piece of equipment, purchase a property, buy stock or general working capital, Peer to Peer lending for businesses offers the most accessible and flexible way of finance for established businesses.