3 Reasons Why Crowdfunding Your Business Financing is a Bad Idea
Everyone loves those out-of-the-blue, lightning-in-a-bottle epic business success stories, where an entrepreneur (or maybe a group of college friends) raises millions of dollars through crowdfunding. It’s a feel-good story and makes us believe that anyone with a great solution, at the right time, can go from flying economy one year, to chartering a private jet the next.
However, for every inspiring crowdfunding success story, there are tens of thousands of campaigns that failed to reach their targets; and the vast majority don’t even clear 4-figures (and that’s after a “friends and family” round or two). Here are the three basic reasons why crowdfunding your business loan is a bad idea:
1. Competition for funds is ferocious.
If you thought trying to get an SBA loan was competitive, it’s a proverbial walk in the park compared to trying to stand out in the crowdfunding marketplace. Potential funders (which are mostly individual, everyday people and not professional venture capitalists as they don’t go near crowdfunding platforms) are overwhelmed with “groundbreaking”, “game-changing” and “revolutionary” campaigns. So yes, while it’s possible that you’ll stand out from the crowd, it’s certainly not something that can be assumed — because the chances of generating enough visibility and traction are exceedingly low.
2. There’s no such thing as free crowdfunding.
Crowdfunding has an appealing counter-cultural, populist feel to it. It’s energizing and satisfying to turn away from banks and conventional lenders, and make a direct, emotional appeal to everyday people. However, make no mistake: you’re crowdfunding a business loan, not a donation. As such, you need to fulfill commitments based on pledge tiers. Failing to do so will severely (and probably permanently) damage your reputation, and you may even be faced with a lawsuit.
3. You’ll answer to people who have no idea how to run a successful business.
Let’s say you launch a crowdfunding campaign, and tell potential backers that you plan on using the funds to build inventory. Fast forward a few months — and $50,000 in pledges — and you get a once-in-a-lifetime offer to partner with a much bigger company with deeper pockets, provided that you change gears and focus for the next year on usability testing before building your prototype. Even if this is absolutely the right move, your crowdfunding backers aren’t going to be pleased. They were promised something, and yet you’re doing something else. Suddenly, crowdfunding turns from liberating into restrictive.
4. The Bottom Line
A much simpler, smarter and more realistic way to get the funding you need is to partner with National Business Capital. Our approval rate is around 90% (compared to about 20% at big banks), and you’re 100% free to spend the funds as you deem appropriate — and that includes changing your strategy during the course of the loan if you determine that it’s in your best interest to do so. What’s more, it’s fine if you have impaired or bad credit, and you only need a few months of business history.
Learn More Why Crowdfunding is a Bad Idea for Business Financing
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