How Crowdfunding Can Be Used Alongside Other Funding Sources

How Crowdfunding Can Be Used Alongside Other Funding Sources

From MusKan RajPoot

Crowdfunding is a very good option for raising money. It can be utilised to fund charitable projects, help families and individuals who are facingchallenging times, or even get a new business off the ground. Crowdfund...

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The reality of crowdfunding is that it is often used alongside other funding sources. There is nothing wrong with that. As any experienced entrepreneur can tell you, utilising multiple sources of funding is actually a good thing. Doing so is the funding equivalent of not putting all your eggs in one basket. When you can raise funds from multiple sources, there is a greater potential to succeed in your endeavour.

Are you looking to start a crowdfunding campaign? If so, what do you intend to use the money for? The type and scope of your project generally dictate how you can use crowdfunding in conjunction with other funding sources.

A Brief History of Crowdfunding

At its core, crowdfunding is nothing more than large groups of people contributing small amounts of money to fund a project they believe in. The practice goes back thousands of years. What is considered modern crowdfunding dates back to the 1700s and a business entity known as the Irish Loan Fund. The Fund was established to provide loan services to the poor.

Credit unions were another form of early crowdfunding that came into their own in the mid-19 century; micro-financing followed in the mid-20 century. All of these early iterations involved wealthy investors willing to put their money to work for a variety of projects.

The first modern crowdfunding programme involving middle- and lower-class donors was a campaign by a British rock band. The band, Marillion, solicited donations from fans in order to stage a reunion tour in 1997.

A Viable Source of Funding

Crowdfunding came into its own following the global financial crisis of 2008. Short on wealthy investors looking to fund start-ups, entrepreneurs turned to crowdfunding in order to get new businesses off the ground. It worked so well that charitable organisations and individuals looking to lend a helping hand started utilising it as well.

These days, crowdfunding is a viable source of funding for projects of all types. From operating missionary schools in faraway lands to helping families cover the cost of expensive cancer treatments, crowdfunding is alive and well just about everywhere.

Other Sources of Funding

As previously stated, crowdfunding is unlikely to bring in enough to fund an entire project. It is often necessary to use other funding sources to meet a project's financial goals. Below are a few of those other options, some of which are targeted at specific types of projects.

Crowdfunding was originally a business tool rather than a way to raise money for charitable efforts. It is still used as a business tool today. So it's not surprising that entrepreneurs are more than willing to look at crowdfunding in conjunction with applying for small business loans.

Whether an entrepreneur utilises an online resource like fastbusinessloans.com.au or goes directly to a bank, he soon discovers that business lending is limited. Business lenders are not necessarily keen on financing a new start-up entirely. They are generally willing to lend only a certain portion of the project's needs. Combining small business loans with crowdfunding offers a good start for most entrepreneurial projects.

An alternative to small business loans is something known as peer-to-peer (P2P) lending. In a P2P lending scenario, multiple investors pool their financial resources to make private loans. Because P2P platforms are not banks, they do not have to be so stringent about lending requirements. They are more easily able to lend to people who are otherwise avoided by banks.

Again, combining crowdfunding with a P2P loan could provide the bulk of the funding for a given project. The two sources together are a good option for entrepreneurs who are confident they will generate the revenue to pay back the loan.

It is impossible to talk about funding a project without considering bootstrapping. What is bootstrapping? It is the practice of using your own funds to support your project. Note that it goes above and beyond the money in your bank account.

People who bootstrap significant projects are known to tap into a variety of personal funding options. One person might transform the equity in his house into a revolving line of credit. Another might take out a second mortgage. Still another might have savings or retirement programmes he can tap.

One of the upsides of bootstrapping is that it forces you to put some skin in the game. This may be attractive to other investors as it makes them more willing to contribute. On the downside, bootstrapping presents the real risk of losing every penny you put into your project.

Combining crowdfunding and bootstrapping can raise significant amounts of money. It may not be enough to get a project fully funded, but that is all the more reason to seek out other funding sources.

Crowdfunding Has Many Forms

In closing, it is important to note that crowdfunding has many forms. It really depends on the purpose of your campaign and how you want to structure it. If you are raising money for a charitable cause, for example, you're really soliciting voluntary donations. Those who donate receive nothing in return – save the personal rewards of knowing one has helped a good cause.

 

Raising funds for an entrepreneurial enterprise is slightly different. Investors generally expect something in return. For instance, an entrepreneur might offer investors free sample products in return for their contributions. If that's not possible, a discounted price on the company's products or services might be offered. Some entrepreneurs even offer to repay contributions with interest.

 

If you are looking to raise a significant amount of money to fund your project, crowdfunding is one way to go about it. Consider how you might use it in conjunction with other funding sources to achieve your financial goals. You may just discover that starting a crowdfunding campaign was the smartest thing you could have ever done for your project.

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