Raising capital is necessary to launch your small business or fund future growth. Thankfully, the traditional methods of securing financing from a bank, angel investor or venture capital institution are no longer your only options. Crowdfunding is another way to help your small business financially.

What is Crowdfunding?

Crowdfunding uses the power of the internet and social media to give you a platform to share and showcase your business idea pitch to a large pool of interested investors. In addition, this type of financing provides flexible fundraising options to better meet your company’s current financial needs.

How Does it Work?

There are two types of popular methods for small businesses:

1) Rewards-Based

This financial option allows you to offer an incentive to your contributors instead of an ownership stake in your company. The reward is typically a free product or service from your business. This method is popular for startups because it doesn’t require extra expenses to get started.

2) Equity-Based

Just like it sounds, this option allows investors to provide capital in exchange for ownership and equity shares in your company. Your contributors receive a distribution or a dividend from your future profits. This method can help you expand your business or fund a large, expensive project.

What are the Benefits?

This type of financing offers several benefits to your small business.

1) Provides marketing exposure

Since social media drives crowdfunding, it offers built-in marketing exposure for your small business idea. People who read about your company typically want to share it with their friends, followers and family members. This organic growth could lead to a feature story on a blog, podcast or news outlet and introduce your plan to an even larger audience.

2) Gain early adopters

The people who read your story and decide to invest in your small business become your early adopters and brand ambassadors. Their sharing actions on social media about your company gives your pitch the validation and social proof needed to become accepted by more cautious investors.

3) Efficient fundraising method

The traditional methods of raising capital require time searching for investors or preparing the paperwork to apply for a small business loan. Crowdfunding enables you to choose an online platform and post your company’s story and business plan in a centralized location read by people looking for investments.

The next time you’re starting a new company or need funds for growth, consider crowdfunding to get the financial help you need.