Friday 7 December 2018

Finance Fridays – Crowdfunding

We were looking at how to make moving home cheaper in last week's Finance Fridays. This week we are talking about crowdfunding. It's become a way for individuals and small businesses to find funding without getting a loan. Let's look at what crowdfunding is and how to use this method.

What is crowdfunding? - It's a way to raise money for projects either a personal plan or a business proposal. Instead of going to a bank or other financial institution for a loan you ask people who believe in your business to invest in it.

What do the people who invest get in return? - Unlike a loan you don't get your money directly repaid. Instead you offer potential investors an equity stake in your business (think Dragons' Den) or benefits from the business. For example if you were trying to start a restaurant you could offer investors a certain number of free meals each year or discounts off their bill.

How much do people have to invest? - It depends if there is a fixed set amount for all investors or a minimum amount that people have to invest. Some crowdfunding projects start from as little as £5 for an investment.

How do I get people to invest in crowdfunding? - There are a number of websites that you can register with and upload your proposal. You will need to be clear on how much you are aiming to raise, the time limit for finding the funding and how much equity is offered in return. As well as registering with a specialist website you will need to publicise your project yourself.

What happens if the final figure isn't reached? - There will be a time limit for the crowdfunding total to be reached. If it is not achieved by then the money will have to be returned to the people who did want to invest.

Is my money safe? - If the crowdfunding website goes bust then it should have ring-fenced your money and it should be returned to you. If the crowdfunding project you have invested in starts up and then goes bust then it is like investing in any other business. Many start-up businesses or projects fail so you risk losing all the money you put in. For new businesses it can be some time before they start making a profit if at all. If you want to sell on your stake in the company it could also be tricky as shares in small businesses are not regularly traded.

Have you thought if using crowdfunding in finance a project? Have you ever invested in a crowdfunded scheme?

If you want to join in with this week's Finance Fridays then add your link to the linky below. Any post concerning financial matters is allowed. Full details here. It doesn't have to be published today as you have until 23.55 on Tuesday 11th December 2018 to join in.

Finance Fridays

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