Using Crowdfunding to Help With Rising Costs

small business financing

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Using Crowdfunding to Help With Rising Costs

With costs rising for businesses across industries, small businesses are being hit particularly hard. With less access to goods and tighter margins, it can be daunting to see so much of your bottom line seemingly vanish overnight as labor, raw goods, and services all increase in price. One way to access funding to help overcome these challenges is crowdfunding, and due to its flexibility and community engagement, it can have lasting positive impacts.

With costs rising across the board, you may be considering a cash infusion for your business- whether it's for immediate working capital or a longer term strategic move. Here are 3 reasons crowdfunding might be a good source of that funding:

Easy to Access

Raising funds through crowdfunding doesn't require collateral and can come together quickly- that is, if you have all of your documents in order. Whereas a lending process may require collateral or a credit check, crowdfunding typically does not, meaning that it can be a simpler process for entrepreneurs without existing banking relationships. Even for businesses with existing banking relationships, crowdfunding may be a good alternative for a fast and efficient process. On Mainvest, for example, capital raised is subordinated debt- so it fits in well with existing loans. When businesses need to move fast, crowdfunding can take a founder from conversation to money in the bank within a matter of weeks, not months. Plus, while terms will always vary business to business, as lending becomes more expensive, crowdfunding can be a less expensive alternative.

Community Buy-in

Coming out of the pandemic, we saw that the businesses with community backing were more successful than those without. Community is more important than ever before, and gives a competitive edge when every dollar of incremental revenue counts. By offering customers and community members a chance to invest in your business, you're essentially securing their loyalty to your brand as they'll have a financial stake in your success. Furthermore, by being able to raise funds from a wider pool of individuals, you may be able to raise more than you may have expected. Especially if lenders aren't coming to the table with an amount of capital that will allow you to achieve certain milestones or pursue a meaningful project, your community just might.

Flexibility

Raising money through crowdfunding tends to be a more flexible option than a traditional term loan. With Mainvest, for example, you raise capital through a revenue sharing note. With a revenue sharing note, you're sharing a percentage of quarterly revenue with investors until they're repaid. Unlike a term loan, with a set interest rate and monthly payments, repayments on the RSN scale with you. And at a time when every dollar matters, if you can't afford to make burdensome repayments when you're having a down quarter, the RSN builds in this flexibility. For example, if you're taking a step back from sales to pursue a renovation, your repayment on the quarters when sales are lower reflect the decrease in sales. Conversely, if you're doing particularly well, investors can benefit from that success by seeing a larger repayment. During the pandemic, when so many businesses had to suddenly close down operations, the revenue sharing note provided a level of flexibility that many other forms of capital didn't offer- and businesses benefitted from that by being able to pivot effectively and pursue alternative revenue streams.

You should always consider pros and cons of taking on debt, but when it comes to raising capital, crowdfunding can be a great option for small businesses looking for alternatives to expensive bank loans. As interest rates rise, it's possible that traditional financing rates will, too. Crowdfunding offers another path that integrates the community into small business growth.