Crowdfunding loans UK
Crowdfunding loans in the UK aren’t easy to come by. Setting up a crowdfund campaign is no easy feat, but when done properly through Drop Studio, you and your business stand a higher chance of securing those much-needed funds than you would have had you gone at it alone.
In this blog we’ll explore:
- What is crowdfunding
- How crowdfunding loans work in the UK
- Advantages & disadvantages of crowdfunding loans in UK
- Is crowdfunding in the UK a good idea?
What is crowdfunding
Crowdfunding platforms offer companies like yours a way to raise large sums of capital from a variety of minority investors, customers or lenders in a short time frame. Crowdfunding makes investing more personal and impactful, connecting you directly with your investors.
When looking for crowdfunding loans in UK people need to know who you are. Tell potential backers about yourself and your experience. Make it personal. Alternative types of funding, most notably peer-to-peer lending (P2P lending) and crowdfunding have grown significantly over the years during a period where banks were widely criticised for not lending enough to small businesses.
How crowdfunding loans work in the UK
Crowdfunding loans in the UK have emerged as a popular way for startups and small businesses to secure funding outside of traditional routes.
Investing in a new company was previously reserved for professional investors. Crowdfunding makes it simpler so anyone can make a micro investment in a new business that interests them.
Originally, crowdfunding started off as a way for more unique, quirky and less traditional business ideas to secure funding. The concept has grown rapidly. It works by allowing large numbers of people, namely the ‘crowd’ in crowdfunding to individually invest small, affordable amounts into businesses.
With lots of investors contributing, these small amounts add up to a large, pooled investment that can be used for various purposes by your business. The majority of crowdfunding platforms in the UK involve selling ownership in your business, known as equity-based crowdfunding. Some global crowdfunding websites operate a rewards-based scheme, where in exchange for a contribution, you give your investors the finished product you’re making.
Advantages & disadvantages of crowdfunding loans in UK
If you are considering raising finance for your business (which you most likely are, hence you’re on the Drop Studio website), project or venture through crowdfunding, there are a number of factors that you might want to consider. Drop Studio has helped you create an amazing crowdfund campaign and you’re all set. But you still have questions.
Here are the advantages of crowdfunding loans in the UK:
- It’s a faster way to raise finance with no upfront fees
- Pitching a project or business online platforms can be a valuable form of marketing and result in media attention
- Putting your idea on display for the world to see could potentially get you advice from people on how and what to improve
- It’s a good way to test the public’s reaction to your product & business. Chances are if people are keen to invest it is a good sign that the your idea could work well in the market
- Investors can track your progress – this may help you to promote your brand through their networks
Here are the disadvantages of crowdfunding loans in the UK:
- It’s not necessarily an easier process to go through compared to the more traditional ways of raising finance. Not all projects that apply to crowdfunding platforms get onto them
- You still need to do a lot of work in building up interest before the project launches – significant resources (money and/or time) may be required
- More often than not, if you don’t reach your funding target, any finance that has been pledged will usually be returned to your investors and you will receive nothing
- Failed projects risk damage to the reputation of your business and people who have pledged money to you
- If you haven’t protected your business idea with a patent or copyright, someone may see it on a crowdfunding site and steal your concept
Is crowdfunding in the UK a good idea
A strong, highly visible crowdfunding campaign can provide validation and social proof that’s vital in paving your path. When potential customers show interest in your startup’s product or service, you’ve generated social proof, demonstrating that other people believe in what you’re doing.
When you’re an early-stage company focused on building your business and attracting seed capital, you might not be able to afford all the time and attention that pursuing traditional financing demands.
Compared to applying for a loan or seeking out accredited investors yourself, setting up a successful crowdfunding campaign on with the help of Drop Studio is far more efficient and effective in getting your message out to the right people.
Crowdfunding can raise huge sums. According to Business Insider plenty of UK businesses have secured millions of start up capital using crowdfunding platforms.
In 2017, Hopster raised £4.8m on Venture Founders for its ad-free TV and learning app for kids. JustPark raised £2.2m on CrowdCube and pay-as-you-go workout business Core Collective raised £2m on Seedrs.
So what’s stopping you from doing the same?