- Building Your Business
What You Need To Know About Crowdfunding
ByElla Ames
Updated on July 30, 2022
Reviewed by
Robert C. Kelly
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Reviewed byRobert C. Kelly
Robert Kelly is managing director of XTS Energy LLC, and has more than three decades of experience as a business executive. He is a professor of economics and has raised more than $4.5 billion in investment capital.
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Fact checked by
Gina LaGuardia
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Fact checked byGina LaGuardia
Gina LaGuardia has more than 25 years of experience in senior editorial roles, and is an expert in personal finance topics, including banking and lending. She has created content for financial powerhouses such as Chase Bank, American Express Canada, First Horizon Bank, BBVA, and SoFi.
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In This Article
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In This Article
- What Is GoFundMe?
- Crowdfunding vs. Traditional Funding
- Pros and Cons of Crowdfunding
- How To Start a GoFundMe Campaign
- Other Business Crowdfunding Options
:max_bytes(150000):strip_icc()/GettyImages-1184214694-9b31e6ede7484fdca2afeb91ea6a62b0.jpg "How To Use GoFundMe for Your Business (3)")
Crowdfunding has become a popular way for small business owners to access funding. There are many such options available for business use, with various platforms catering toward different audiences and types of fundraising initiatives. GoFundMe is among one of the most well-known crowdfunding platforms, making it a compelling option if you’re seeking to raise capital for your business.
Before you embark on a GoFundMe campaign, however, it’s important to understand how GoFundMe works, how crowdfunding compares with traditional business funding options, and the steps involved with starting a GoFundMe campaign. We'll explore its ins and outs, and help you determine if using GoFundMe is a good fit for your business.
Key Takeaways
- GoFundMe is one of many crowdfunding platforms small business owners may consider as an alternative to traditional business funding.
- The GoFundMe platform is geared toward fundraisers that impact the community, have meaningful stories connected to them, or are related to an initiative donors would want to support.
- Before launching a crowdfunding campaign, it’s important to consider the time and effort required to run a successful fundraiser; donors typically expect updates on how the funds are being used.
What Is GoFundMe?
GoFundMe is a crowdfunding platform that can be used in a multitude of ways, both for personal and business initiatives. To raise money, you'll first create a fundraising page with photos and video explaining the story behind the need for funds, as well as the goal amount you’re trying to raise. You’ll then share your fundraising page with friends, family, colleagues, potential customers, and others. Individuals can choose to donate to the cause and help you reach your goal. GoFundMe also provides the tools for you to monitor and manage your donations, as well as communicate to each of your donors.
Note
There are two main types of business crowdfunding: donation or rewards-/purchase-based, in which individuals donate money in exchange for receiving products;and investment crowdfunding, where a business will sell equity stakes in the company in exchange for infusions of capital.
Crowdfunding vs. Traditional Funding for Businesses
When considering your options for business financing, it’s important to weigh the pros and cons of various choices. Here are some of the similarities and differences between crowdfunding and traditional business funding.
| Crowdfunding | Traditional Funding for Businesses |
|---|---|
| You typically don’t need to meet certain financial requirements in order to create a fundraising page. | You’ll likely need to fill out an application and meet the funding requirements. |
| You need to create and continually monitor a campaign with updates about how your business is using the funds. | Traditional business funding typically doesn’t require updates on what the funds are being used for. |
| When you’re able to access the funds differs depending on the crowdfunding platform; bank transfers through GoFundMe can take two to five business days. | Some funding options can provide access to cash within 24 hours of application approval. |
| The money raised usually doesn’t need to be repaid. You will, however, need to fulfill whatever promises you made to donors, the platform may charge fees, and the funds raised may be considered taxable business income. | Depending on the funding option, you’ll likely need to repay the money according to the terms and conditions of the agreement, usually with interest. |
Pros and Cons of Crowdfunding
Pros
Potential business exposure to a large audience
A platform to test out new ideas
Typically low risk
Cons
Management and monitoring can be time-consuming
Often fee-based
Sometimes comes with restrictions
May be considered taxable income
A poorly managed campaign could create negative publicity
Pros Explained
- Potential business exposure to a large audience: Crowdfunding platforms often rely on extensive social media exposure. If your followers share the fundraiser campaign with their own social networks, it can introduce new potential customers to your business.
- A platform to test out new ideas: If your crowdfunding campaign involves donors supporting a specific product or concept, it can be a good way for your business to gauge the market and potential demand.
- Typically low risk: Crowdfunding business owners typically don’t give away any control over their business, so if your rewards-based crowdfunding efforts fail, you usually won’t need to repay donors.
Cons Explained
- Management and monitoring can be time-consuming: Creating a compelling fundraiser that engages others isn’t easy. You’ll also need to continually update the campaign because supporters often expect to be kept in the loop regarding how donated funds are being used.
- Often fee-based: The fundraising platform you use may charge fees, which means you won’t receive the full donation amount.
- Sometimes comes with restrictions: Depending on the platform, you may need to meet certain requirements before you can access the money. For example, you might not receive any funds until you meet your target goal.
- May be considered taxable income: Depending on the type of crowdfunding used, funds raised may be considered taxable business income by the IRS.
- A poorly managed campaign could create negative publicity: Fundraising efforts that appear unprofessional—whether through low-quality images or video, poor communication with donors, or anything else that could cause supporters to have a bad experience—can hurt your business image and alienate potential clientele.
How To Start a GoFundMe Campaign for Your Business
Starting a GoFundMe for your small business is a simple process. However, maintaining the campaign and getting attention from potential donors will take time and effort. The following are the necessary steps of how to start a GoFundMe for a business.
Create Your Fundraising Page
Start your business’s campaign by creating a compelling fundraising page and identifying a financial goal. Include high-quality photos and video that tell your story. Pick a catchy title for the fundraiser, and spend time reflecting on the human aspect of what the business’s success means. Maybe the company is a core part of the community and people will want to help out; perhaps it’s fueled by an inspiring story about a veteran who is launching their own startup; or the business supports a cause donors feel strongly about.
Note
People want to help other people, so be open and honest about your financial need and the deeper story behind the importance of what the funds will be used for.
Share Your Fundraiser With Others
The next step is to get the word out about your fundraiser. Spread the campaign via email, text, phone calls, and social media. Create a hashtag for the fundraiser, and ask others to share it with their social media followers. Think about what the funds will be used for and whom the business affects, then reach out to these people or groups to let them know about the campaign. Consider getting press coverage for the cause as well.
Collect Donations and Update Donors
In most cases, you can withdraw the donated funds at any time during the campaign without affecting the status of the fundraiser or the progress tracked toward your goal. It’s important to thank donors for their contributions, and keep them updated on how the fundraiser is going and what the money is being used for.
Note
Many of your donors may be potential customers, so build a relationship and maintain a good rapport with them. Follow-up emails after the campaign to keep donors informed on business updates can be a good way to build community.
Other Business Crowdfunding Options
There are many different crowdfunding options for small businesses. Depending on your purpose and fundraising goals, you might find that one specific platform meets your needs more than others. Here are a few other popular platforms:
- Kickstarter: Specifically designed for businesses raising funds to create a product
- Indiegogo: Geared toward new innovations in need of funding, in particular tech projects
- Patreon: Allows artists and creators to offer subscription services
Is GoFundMe a Good Option for You?
GoFundMe tends to be a platform that supports social causes and fosters a sense of community. If your fundraising goal positively impacts the community, has a meaningful story behind it, or is related to a cause that others may want to rally behind, then GoFundMe could be a good fit for your business.
Frequently Asked Questions (FAQs)
How much does GoFundMe charge?
GoFundMe doesn’t charge users anything to set up a fundraising page; however, in campaigns for individuals or businesses, it automatically deducts a transaction fee of 30 cents plus 2.9% from each donation.
What happens if a GoFundMe page doesn’t reach its goal?
There is no penalty if a GoFundMe fundraiser does not hit its target amount. All funds donated will still be received. Fundraisers can continue getting donations even after a goal is met for as long as the organizer decides to keep the campaign active.
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Sources
The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
SCORE. “Simple Steps to Choosing the Right Financing,” Page 3.
SCORE. “Should You Use Crowdfunding To Help Finance Your Business?”
U.S. Small Business Administration. “Fund Your Business.”
Piccerelli, Gilstein & Co. ”Do I Owe Taxes if I Am the Recipient of a GoFundMe Campaign?"
GoFundMe. “Simple Pricing, Powerful Fundraising.”
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