Is Crowdfunding Better Than a Small Business Loan?


Pebble, which is a tech company based in Palo Alto, CA, has raised more than $30 million in crowdfunding for two products, proves that crowdfunding has value. So do small business backers, raising an average of $10,000 in seed money when their crowdfunding campaigns are successful. The only problem with crowdfunding a small business is the success rate: Just over 3% of small business projects reached their goals in 2014.

In real numbers, that’s about 630 small business projects. Worldwide.

The odds are definitely against the small business owner when it comes to crowdfunding. In the United States, a small business loan in available from the government that can act as seed money with a good chance of being approved for it. Traditional lending options for a small business loan is also available. Are these loan opportunities the way to go? Or is crowdfunding better than a small business loan?

Know Your Market and You’ll Know What To Do

For Graham Gori, he found crowdfunding success because he knew his Whidbey Island, WA market. He successfully crowdfunded $16,000 on Kickstarter for a new restaurant because he knew specifics. Customers will drive from the north end of the island, a 45 minute trip for some, to have a good meal. His food products at a food stand during holiday markets in his hometown of Langley were always successful.

He combined these two facts into a holiday campaign that was very successful. Then he promoted the campaign through traditional methods. At one point, you could even find Gori wearing a sandwich board in a local parade.

The point is this: if your market will support your new business opportunity, then you’ve got a chance to find crowdfunding success. It doesn’t matter if you get global support. If your local customer base doesn’t want your product, then even if you do get funding, you will struggle to find long-term success.

This is why the small business loan might be right for some small businesses – especially if there is a solid credit profile in place. Even P2P lending may be a viable alternative.

You can take a small business or one good idea and turn it into a multimillion dollar idea. You can also be like Gori and get the seed money needed to create a local business from scratch. Sometimes crowdfunding is better than debt, but not always. That’s why both funding opportunities must be considered.