Why Crowdfunding Is the Best Solution for Entrepreneurs without Credit

by Alex Feldman

April 1, 2017

You can make over $100,000 a year, have a perfect rental payment history, and outright own your own car, but if you are looking to qualify for a traditional business loan you can pretty much forget it if you don’t have credit. The only way you can build a credit file is by taking out loans, being approved for credit cards, or opening lines of credit such as with utility companies. Even if you took out a couple of nominal student loans to pay for your education as an online MS finance major at Northeastern University, your credit history may not be sufficient to get you approved for even a moderately sized business loan. The fact of the matter is that it can take you a while to develop the type of credit history that banks like to see in businesses, and if you are looking to launch a company, you can’t wait two years or more to get starting capital.

How Crowdfunding Can Boost Up Startups

Unlike crowdsourcing a loan, crowdfunding is more like an online donation platform. If you need money for a business or any other worthy need, people will outright give you money to help further your efforts. If you are an inventor who needs money to pay for raw materials, it may be a long time before you see any profit yourself. In this situation, getting money through crowdfunding can be a better overall approach, as paying back a loan could put a huge financial strain on your efforts. Students studying for their online master of science in finance have compared what happens to startups that have a lot of financial burden versus those who have been gifted seed money that they are under no obligation to repay. The new companies who are to focus their efforts 100% into growth and expansion always outperform those that have a huge amount of debt.

The Caveats of Running a Crowdfunding Campaign

Even though the money gained via crowdfunding efforts is yours to keep and invest into your business, it takes a substantial amount of work to get those funds in the first place. People will ask questions about your company before they are willing to donate. Remember, people will expect updates and it is good form to thank those who have donated.

Ways to Get Your Crowdfunding Efforts Noticed

As crowdfunding gains the attention of other new company owners, websites that formerly had only a few campaigns going at one time are now featuring thousands of different projects. You may not want to spend a whole lot of time making your campaign visually appealing, but you do want to be noticed. Honesty is probably the best policy as it relates to crowdfunding, so don’t be afraid to give too many details about what you want your business to be able to accomplish.
Some startup company owners go from bank to bank, applying for traditional loans and never, ever having their applications approved. They may then turn to friends and family, try to find angel investors, or simply sell everything they own to fund the companies that they earnestly believe in. Crowdfunding is a new tool that startups can use for raising capital when other sources of funding are impractical.