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Home » Clearing Up the Confusion: What is Crowdfunding?

Clearing Up the Confusion: What is Crowdfunding?

Phil Cohen

As some businesses struggle to launch or stay afloat, more and more are looking into crowdfunding as a way of infusing their businesses with new capital. Crowdfunding is defined as the “practice of funding a project or venture by raising many small amounts of money from a large number of people, typically via the Internet.”

In lieu of traditional investors, crowdfunding campaigns are backed by the general public. Kickstarter and other crowdfunding websites provide a platform for owners to show-off their business idea to a large audience.  For the successful projects, initial funding usually comes from close connections including family, friends, colleagues or anyone the business owner is connected to. Between 25-40% of revenue is derived from first, second and third degree connections. Once a project gains some notoriety, unrelated funders may begin to jump on board to support the projects they deem worthy.  Investors pledge a minimum sum and often receive a reward for their involvement.

But there is more than simply creating a profile and sending your link to friends and family; businesses must demonstrate a greater purpose to their venture in order to garner support and appeal to outside  backers. The truth? Most businesses won’t receive the funding they need. In fact, it’s not uncommon for crowdfunding sources to reject 98 percent of applicants.

Of course there are ways to increase your odds. Designing a visually creative and enticing page for your project will also attract people to your cause. Having a project or business that people can connect with may help you gain more attention and funds.

For a select few, crowdfunding can be a great way to fund a small business. For the bulk of businesses – bank loans, credit cards and alternative lending options remain a more viable option.

Factor Finders provides working capital to small and mid-sized businesses through accounts receivable factoring. Selling accounts receivable frees up your cash that’s been tied up in unpaid invoices. Contact us today if you need funds to cover payroll, pay bills and meet expenses. Our small business factoring experts will help you obtain the funding you need – with no debt!

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Phil Cohen

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