2nd October 2014
Main benefits of Crowdfunding for businesses
Crowdfunding is gaining popularity in the modern world as an innovative method by which companies (particularly SME’s) can generate finance. Currently the North American market is the most advanced, with the European market hot on its heels.
Below we have listed some of the advantages to Crowdfunding versus normal forms of raising finance for your company:
1. Fast access to finance
A successful crowdfunding campaign can be faster and less complicated than going to a bank and getting a loan. An application can take up to 6 months to be fully processed and often involves a lot of admin and paperwork
Crowdfunding could get you the money you need in as little as 2 weeks (longer campaigns can run for up to 60 days) after a relatively straight forward application process
2. Good advertising and PR
Due to the nature of Crowdfunding, people (or the crowd) are inherently involved in the success of your campaign. By featuring on a Crowdfunding website you will be seen by a large crowd of investors rather than a select few angels or venture capital firms. Moreover, having your most fanatical supporters as investors ensures that they too have a part in the success of the company, which encourages them to further market your proposition (for free) to their friends, family and business associates.
3. Interest rates
If you have an attractive proposition, you could get better interest rates than you would otherwise get from a bank through crowdfunding for debt-based campaigns. This is due to fact that investors bid on opportunities, and investors who deem opportunities to be either particularly lucrative or less risky will offer lower interest rates accordingly – the crowd sets the rate at which you can borrow.
4. “Proof of concept” or Market Validation
Raising on a crowdfunding platform will expose your business idea to a vast amount of potential investors and business professionals. A fully funded crowdfund demonstrates that this crowd of investors and business professionals believe in your idea – not just one investor. That being said, if your crowdfunding raise is not successful, then it would be a good time to re-adjust your position and take another look at your business as a whole in order to identify what may be missing that deters investors. Furthermore, in order to get this information you can also get feedback directly from investors.
5. Tax relief
Businesses can harness their SEIS and EIS tax relief which means that when raising equity finance from investors it reduces the risk for them which means you get better terms and they get less risk.
Fig. 1: http://www.entrepreneur.com/article/227212
Past performance and forecasts are not reliable indicators of future results. Your capital invested is not covered for compensation in the event of a loss by the FSCS. Tax treatment will depend on the individual circumstances and may be subject to change. Please see our Risk section before making an investment decision.