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It seems that you can’t go on to a social media site without seeing some new idea being launched via a crowdfunding site.  The success stories have been huge, which then attract all kinds of media attention.  Could this type of funding be the way forward for your start up business?

Crowdfunding is a non-traditional method of raising finance for your start up business.  As the entrepreneur, you use the funding platform to showcase your business opportunity to as many people as possible, who in turn pledge money in order to finance your business start up costs.

In return for their pledges crowdfunders have the excitement of investing in something new and also receive rewards, such as products, donation recognition or equity in your business.

Crowdfunding can be a fun way to fund your small business and generate a buzz even before you start trading.  Marketing and financing in one go; so what could be better?

However, it’s important to realise that crowdfunding is not an easy shortcut to business funding and it won’t be right for all business types.

The first big consideration is that most funding platforms work on an all-or-nothing basis.  So, you set a target – to reach a certain amount of business funding.  If your campaign is successful in reaching that target, within a specified time frame – fantastic!  If you’re not so successful (even if you reach 99% of your target figure, but don’t make it to 100%) then unfortunately it’s back to the drawing board for you.

The most well-known of the crowdfunding platforms at the moment is Kickstarter.  Their projects currently have a 35% success rate of achieving their start up business funding.

Ideally you need to have a visually strong and marketable product to succeed with crowdfunding.  You will also need a lot of online support from as many friends and family as possible.  This circle of friends will not only be your initial financial backers, offering the first start up funding pledges, but you will also need to rely on them to promote your business.  They will need to drum up support for your start up business so that your crowd of funding does grow and you reach your funding target in time.

If you are risk averse this is not the financing path for you.  Weeks and months could be spent on the one crowdfunding marketing campaign with the expectations of you, and everyone who knows you, resting on the outcome.  A failure to reach enough backers could be devastating.

Alternative Business Start Up Funding

If crowdfunding isn’t right for you (or your start up business proposition) you are not resigned to having to make an appointment with the bank manager with folders of figures in a briefcase.  Fortunately, there are other business finance options available.

Access to start up business funding may be more accessible than you realise.  For new start up businesses, having been trading for up to two years, a Virgin StartUp loan could be the solution.

Start up loans are unsecured personal loans for business use.  Being unsecured means you don’t have to risk your family home on your business venture.

The biggest advantage is that Virgin StartUp loans are specifically designed to help you start and grow your business.  

You receive support from your Virgin StartUp loan partner* in writing your business plan and help in forecasting realistic financial projections to assist in having your loan application approved.

In contrast to the crowdfunding option there is an ongoing source of support and advice.  Virgin StartUp provide you with free entrepreneur mentorship for 12 months.  During which time, you’ll also have the opportunity to attend workshops and networking events to build your business support structure even further.

Choosing What’s Right for You

Do not be fooled into thinking that any route to making a new start up business a success will be easy.  A crowdfunding success story could blow you way past your initial goal, but having ongoing business support available just a phone call away may prove to be more valuable to you in the long run.  So, it is important to look at every available option for funding your new business start up and your individual business needs.

Have a plan and have a backup plan.

Business Enterprise Support (BES) have helped thousands of people from all different backgrounds prepare, fund and successfully launch businesses of their own across the Midlands and Black Country.  Take a look at some local Virgin StartUp loan success stories here.

For guidance on which business approach is right for you call 0845 6787 826 and see how BES can help.

*Business Enterprise Support is the Virgin StartUp Loan partner for the Midlands and Black Country (covering Birmingham, Nottingham and Leicester and surrounding areas).