Raising funds will be your first challenge, when you are starting a new business with little to no capital fund. In recent years, crowdfunding has become a popular method for most startups in gaining their capital with the trust from small contributors.

If you are looking at the same method too, check out these different types of crowdfunding and see which one suits your business model the most!

Reward-based crowdfunding

This is the most popular crowdfunding model. The idea is simple, you create a product campaign and promise your contributors or backers rewards in exchange for their contribution. The rewards are usually in-kind, such as limited edition products or free merchandise etc.

Reward-based crowdfunding can also be used for market studies and/or to get feedback on the products. However, it takes a considerable period (3-6 months) to prepare for the campaign, as well as the upfront costs in creating marketing materials. Failed campaigns are not uncommon, and they may impact your future project fundraising.

Crowdinvesting or Equity crowdfunding

In this type of crowdfunding, investors take a small ownership of your company in exchange for the funds. In other words, it’s like having many small angel investors online.

In contrast to reward-based crowdfunding, you can raise funds for general business purposes instead of a specific product. The fund raised will be higher and you can even receive guidance from the investors as well. However, the process of crowdinvesting is generally and legally more complicated. Hence, it could take a long time (between 6 months to a year) and the chances of getting an investor or sufficient funds are not as high.

Crowdlending or crowdfunded loan

This is an easy concept: getting people to loan you money online instead of taking loans the traditional way. Depending on your credit rating and your motivation, you can raise money pretty quickly through this method. This will be the fastest method, taking up a day or two. However, if you have a low credit rating, you may not like the high-interest rate as the loan counts toward personal credit rather than your business. Failure to repay could have a huge blow to your credit rating.

There’s no right or wrong in these methods, just consider the most suitable way for your business model and you’ll be good to go. Good luck!