What Is Debt Crowdfunding & When Is It The Right Choice For My Small Business?

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GoFundMe: A Goldmine For Businesses Hurt By COVID-19?

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6 Financing Options For Up & Coming Entrepreneurs (Plus 4 Expert Funding Tips To Get You Started)

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8 Alternative Funding Sources If Venture Capital Isn’t The Right Fit For Your Startup Or Small Business

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Raising Money For Your Small Business Through Kickstarter? Find Success With These 11 Tips

The post Raising Money For Your Small Business Through Kickstarter? Find Success With These 11 Tips appeared first on Merchant Maverick.

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Loans For Freelance Businesses: Your 13 Best Options

loans for freelancers

Freelancer. The very word evokes freedom (and lances). If you’re a self-employed freelancer, I’m sure I don’t have to lecture you about the perks and drawbacks of running a freelance business. You probably enjoy the independence — the feeling of freedom that comes from choosing your own work assignments and making your own financial choices without a boss looking over your shoulder.

However, you’re probably less than thrilled with the difficulty of getting a small business loan. It’s not easy for any business to qualify for a loan from a big bank these days, but it’s all the more difficult for a freelance business. Most banks see sole proprietors as a lending risk, as you are personally liable for all losses and debts your freelance business incurs. Plus, your entire business is dependent on your good health and ability to work.

For these and other reasons, many freelancers would benefit from exploring alternate means of financing. Thankfully, many different types of financing are available from online lenders. When compared with the big banks, online lenders tend to be somewhat more relaxed in their eligibility requirements. But while you may face fewer hurdles regarding your credit score, annual revenue, and time in business, online lenders usually charge higher interest rates than bank loans. That’s the trade-off you accept in exchange for the convenience and less stringent eligibility barriers of online lenders.

Let’s explore the main categories of financing available to freelance businesses and the top reputable lenders that offer loans within each category. Note that many online lenders offer more than one type of loan, so if I list a lender under a particular loan category, that doesn’t mean they don’t offer other loan products!

Personal Loans

Freelancers will find it difficult to get a business loan, whether from a bank or an online lender. In fact, this goes for most young businesses, freelance or not. Lenders of business loans closely examine your business’s revenue, net income, debt-to-asset ratio, business credit, and collateral, and only the most profitable and well-established businesses tend to qualify.

Personal loans are different. With a personal loan, the lender assesses your credit-worthiness, not that of your freelance business, though you will have to disclose the fact that the loan will go towards supporting your freelance business. However, whether or not you qualify for a personal loan will mainly depend on your personal credit score, credit history, source of income, and debt-to-income ratio. Borrowing amounts are also less than with business loans. Typically, the maximum borrowing amount for personal loans is $35K to $50K.

I’m going to walk you through some of the top online vendors of personal loans. But first, here are some links to articles we’ve done on using personal loans for business expenses.

  • The Merchant’s Guide To Personal Loans For Business
  • Top Personal Loans For Business Compared

Upstart

Borrower requirements:
• Must have a personal credit score of 620 or higher.
• No time in business or revenue requirements.
Visit the Upstart website
Read our Upstart review

Upstart is a great personal lender for the freelancer whose credit might not be stellar. In contrast to the personal lenders who scrutinize your credit score/history and finances to the exclusion of all else, Upstart takes a broader view of your earning potential by considering factors such as your employment history and education. You’ll likely still need decent credit to qualify — your credit score must be 620 or higher — but it’s good to see a lender whose conception of credit-worthiness isn’t quite so exclusionary.

You can borrow a maximum of $50K (in most states) from Upstart — more than with many competitors. As far as Upstart’s terms and fees go, the APR ranges from 7.73% to 29.99%, term lengths are for three or five years, and there’s an origination fee of up to 8%.

Overall, Upstart is a top-rated personal lender with a relatively progressive lending ethos. Check out our full Upstart review and Upstart’s website using the links above.

Lending Club

lending club logo
Borrower requirements:
• Must have a personal credit score of 600 or higher.
• No time in business or revenue requirements.
Visit the Lending Club website
Read our Lending Club review

Founded in 2006, Lending Club was one of the first non-bank online lenders to come upon the scene. They remain one of the most popular online lenders out there, as their rates are competitive and their loans are relatively easy to qualify for. What’s not to like?

For personal loans, Lending Club’s maximum borrowing amount is $40K. The APR ranges from 5.98% to 35.89%, term lengths are for three or five years, and there is an origination fee of 1-6%.

Lending Club has lent money to countless people in its decade-plus in business. To learn more about Lending Club, links to the company’s website and our Lending Club review are posted above.

Prosper

Borrower requirements:
• Must have a personal credit score of 640 or above.
• No time in business or revenue requirements.
Visit the Prosper website
Read our Prosper review

Another pioneer in the online lending industry is Prosper, founded in 2005. As with the previous lenders listed, Prosper offers personal loans you can put towards your freelance business.

Prosper offers fixed-term loans with lengths of three or five years. The company’s APRs range from 5.99% to 35.99%, which includes a closing fee of 0.5% to 4.95%, and the maximum borrowing amount is $35K. You will need a credit score of at least 640, however.

Check out our Prosper review at the link above if you’re intrigued. Afterward, visit Prosper’s website and see what kind of rates you can get compared to the other personal lenders I’ve mentioned.

SoFi

sofi logo
Borrower requirements:
• Must have a personal credit score of 660 or above.
• No time in business or revenue requirements.
Visit the SoFi website
Read our SoFi review

SoFi describes itself as “a new kind of finance company.” Short for “social finance,” SoFi offers free career coaching and financial advising to all members. SoFi’s loans are quite flexible in comparison to the other personal lenders listed here.

SoFi’s maximum borrowing amount of $100K is remarkably high for a personal loan vendor, and term lengths run from three, five, or even seven years. With fixed APRs from 5.49% to 13.49% and no origination fees, SoFi’s flexible personal loans are quite competitively priced indeed. On the other hand, SoFi’s borrower requirements are a bit more stringent than those of the other personal lenders listed here, plus the loans are slower in coming — after you’re approved, it can take up to 30 days for you to get your funds.

Visit the above links to read our SoFi review and check out their website to see what they can offer you. Remember, with lenders, as with life, it pays to comparison shop!

Lines Of Credit

Many online lenders include lines of credit as part of their product offerings. If you own a credit card, you’ll understand the concept of a line of credit loan. You’ll get access to a certain amount of funds, and you can draw upon these funds at any time while paying interest only on what you actually borrow.

Lines of credit actually tend to be less expensive than credit cards. Moreover, the repayment terms usually differ.

I’m going to list some lenders offering business lines of credit, but first, here’s further information about this common loan type.

  • The Merchant’s Guide To Line Of Credit Loans

StreetShares

Borrower requirements:
• Must be in business at least 12 months with a revenue of $25,000 per year (sometimes StreetShares will make exceptions for high-earning businesses at least 6 months old).
• Must have a personal credit score of 620 or above.
Visit the StreetShares website
Read our StreetShares review

StreetShares is an online lender offering lines of credit along with traditional installment loans and contract financing. While StreetShares was founded by veterans and takes pride in catering to the particular needs of veteran-owned business, any business owner can use StreetShares to take out a loan — including freelancers!

Take note of the requirements listed above, as there are revenue/time-in-business requirements to be met. As for the lines of credit themselves, the maximum amount you can borrow is $100K, but the amount of the line of credit you can actually get will depend on your revenue. The more you earn, the more you can borrow. All things considered, StreetShares’s borrower requirements for a business line of credit are not terribly onerous.

The draw term length for a StreetShares line of credit is 3 to 36 months, the APR range is 7% – 39.99%, and there is a draw fee of 2.95% each time you draw from your line.

BlueVine

bluevine logo
Line of credit borrower requirements:
• Must be in business at least 6 months with a revenue of $10,000 per month.
• Must have a personal credit score of 600 or above.
• Lines of credit are not available in all states. See full review for details.
Visit the BlueVine website
Read our BlueVine review

Founded in 2013, BlueVine is an online lender that offers both business lines of credit and invoice factoring (more on that later). Let’s examine their lines of credit.

While the amount you can borrow will depend on your revenue, BlueVine’s maximum borrowing amount is $200K. Term lengths are for 6 or 12 months. APRs range from 15% to 78%, and there is a draw fee of 1.5%.

Along with the borrower requirements listed above, note that BlueVine lines of credit are not available in all 50 states.

Invoice Factoring

Invoice factoring is a way for B2B businesses to maintain a consistent cash flow by selling their invoices, at a discount, to factoring companies in exchange for cash upfront. It’s a way to even out your cash flow when you have clients who take their sweet time paying their invoices.

Invoice factoring has some complexities to it, so if you’re thinking it makes sense for your freelance business, I highly recommend reading our explainer article on the subject.

  • A Basic Introduction To Invoice Factoring

Fundbox

Invoice financing borrower requirements:
• No specific time in business, revenue, or credit score requirements.
Visit the Fundbox website
Read our Fundbox review

Founded in 2013, FundBox offers an invoice financing product called FundBox Credit. Invoice financing is very similar to invoice factoring — the difference to the borrower is that you must make payments on your loan on a weekly basis, not whenever your customer pays their invoice.

Fundbox Credit will hold great appeal to many freelancers due to its relaxed eligibility requirements — you don’t have to meet any time in business, revenue, or credit score threshold! However, you are required to have been using compatible accounting or invoicing software for at least three months, or a compatible bank account for at least six. See our Fundbox review for details.

Fundbox Credit lines are offered up to $100K, the term lengths are 12 or 24 weeks, and there is an advance fee of 0.4% to 0.7% per week when you make your weekly payments.

Riviera Finance

Invoice factoring borrower requirements:
• No specific time in business, revenue, or credit score requirements.
• Best for B2B and B2G businesses.
Visit the Riviera Finance website
Read our Riviera Finance review

Founded all the way back in 1969, Riviera Finance is no newcomer when it comes to invoice factoring. Riviera Finance offers non-recourse factoring, which means you won’t have to repurchase an invoice if a customer goes bankrupt.

While Riviera Finance is a real-world meatspace lender with 20 offices throughout the U.S. and Canada, you can nonetheless apply online to use their services.

Riviera Finance offers contracts that run anywhere from month-to-month to 12 months long, and the credit faculty size runs from $5K a month to a whopping $2 million per month! Check out the links above to learn more about Riviera Finance.

P2P Loans

P2P (peer-to-peer) lending is a lending model employed by many online lenders. Instead of borrowing from a central banking entity, your loan application is instead approved by a banking platform to go live for online bidding, where everyday investors who like the cut of your business’s jib can invest in your business.

Small-time investors can be risk-averse, so freelance businesses with bad credit may have difficulty securing the needed financing. Nonetheless, you’re still more likely to be approved for a P2P loan than a bank loan.

Many online lenders of personal loans and other kinds of loans are P2P lenders. In fact, of the lenders I’ve mentioned thus far, Upstart, Lending Club, Prosper, and StreetShares are all P2P lenders!

Microloans

Microloans are small loans — under $35K but typically in the range of $5K to $10K — offered at low interest rates. Microlenders typically focus on marginalized groups that face difficulties getting a loan elsewhere. As such, they are a solid option for women and minority freelancers seeking smaller loans, though any freelancer can take advantage of the generous terms offered by microlenders.

Kiva U.S.

kiva logo
Borrower requirements:
• No specific time in business, revenue, or credit score requirements.
Visit the Kiva U.S. website
Read our Kiva U.S. review

Kiva U.S. is a remarkable microlender in that not only are there no revenue, credit score, or time-in-business requirements to meet in order to qualify, but Kiva U.S. loans carry no interest or fees whatsoever! Pretty cool, eh?

With Kiva U.S., the only requirement to get a loan is that you run a business and that you put your funding towards your business. You can take out a Kiva U.S. loan for as much as $10K or as little as $25. Yes, that’s 25 dollars. Your APR will be a big fat 0%. Term lengths are for 6 to 36 months.

Does this sound too good to be true? Well, keep in mind that Kiva’s application process is significantly longer than that of other online lenders. The process can take up to two months. For more information, check out our Kiva U.S. review and Kiva U.S.’s website at the links above.

Accion

Borrower requirements:
• Requirements vary based on location — see full review for details.
Visit the Accion website
Read our Accion review

Accion is a nonprofit microlender that also happens to be one of our highest-rated lenders, period. Their reputation, customer service, and financial education programs are all top-notch. While Accion’s loans aren’t “free” like those of Kiva U.S., Accion is an excellent funding option for the freelance business owner.

Borrower requirements vary by location, so you’ll need to visit Accion’s site at the link above to see just what is required of you to get an Accion loan. Credit score requirements vary from 550 to 575, and you must demonstrate that you have sufficient cash flow to repay the loan.

While Accion’s loan offerings vary by U.S. state, you can borrow as little as $300 to as much as $1 million (and yes, it would be a stretch to call that a microloan!). APRs generally range from 7% to 34%, and you may need to put up specific collateral in some situations. Check out our full Accion review above for more details, then head to Accion’s website to see what specific offerings are available in your area.

Crowdfunding

Crowdfunding is an excellent way for freelancers in the creative industries to get funded by those who enjoy their work. Note that while P2P lending is sometimes referred to as debt crowdfunding, the kind of crowdfunding I’m talking about is rewards crowdfunding in which backers support you financially and get exclusive access to your work in return. It’s not technically lending, as you don’t have to pay back your backers!

Of course, running a crowdfunding campaign will require much more of your time and energy than a loan application, so know what you’re getting into. Below is a basic primer on running a crowdfunding campaign. (Note that I mention debt and equity crowdfunding in that article — I’m not focusing on those here.)

  • Crowdfunding For Startups: 8 Tips You Should Know Before Launching

Kickstarter

Campaign requirements:
• Must offer rewards to your backers.
Visit the Kickstarter website
Read our Kickstarter review

Founded in 2009, Kickstarter has become synonymous with crowdfunding. With over $3.6 billion in funding sent to creators and entrepreneurs, Kickstarter is the largest commercially-focused crowdfunding site in existence. If your freelance business is devoted to making creative works, Kickstarter is a great way to raise money for a big project.

Kickstarter requires all crowdfunding campaigns to create something that can be shared with others. There’s no limit to the amount of money you can raise on the platform. Your funding campaign can last for up to 60 days (though Kickstarter recommends 30-day campaigns), and Kickstarter will take 5% of what you raise as a platform fee. An additional 3% + $0.20 per pledge goes to the payment processor.

One thing to keep in mind with Kickstarter is that in order to collect the funds at the end of your campaign period, you must reach or surpass your funding goal. Fail to reach your funding goal, and you get nothing — no soup for you.

Check out our Kickstarter review at the link above if you’re interested, then cruise on over to Kickstarter’s website.

Indiegogo

indiegogo
Campaign requirements:
• Offering rewards to your backers is strongly recommended.
Visit the Indiegogo website
Read our Indiegogo review

Indiegogo is a crowdfunding platform that caters to a similar audience as Kickstarter — creative and tech projects and the backers who love them. Initially founded as a funding engine for independent films, Indiegogo soon expanded their mission, offering crowdfunding for a wide variety of commercial purposes. However, Indiegogo differs from Kickstarter in a few key ways.

While Kickstarter pre-screens campaigns for suitability before letting them campaign, Indiegogo serves all comers — just sign up and get started (though this doesn’t mean there are no rules to abide by). Another difference is that you’re not actually required to offer rewards to your backers. However, as you can imagine, you’re probably not going to raise much money if you offer people nothing, so I don’t recommend doing that!

Another difference with Kickstarter is that when you run an Indiegogo campaign, you can choose to employ the keep-what-you-raise crowdfunding model in which you keep whatever you raise at the conclusion of your campaign regardless of whether you’ve met your funding goal. Indiegogo is more flexible in its terms than Kickstarter.

Fees are largely the same as those of Kickstarter — there’s a 5% platform fee and a 3-5% per pledge payment processing fee. Check out the links above if you’re interested in Indiegogo’s crowdfunding model.

Patreon

patreon
Campaign requirements:
• Must offer rewards to your backers.
• Funding is ongoing on a per-month or per-creation basis.
Visit the Patreon website
Read our Patreon review

Patreon differs fundamentally from Kickstarter and Indiegogo. Instead of campaigning for a fixed period of time for a single project, Patreon lets you crowdfund on an ongoing basis. You can just keep creating on your own time schedule. Your patrons (assuming you attract some!) sign up to support you either on a monthly or per-creation basis. It’s a great way for freelancers to monetize their creative output indefinitely, not just for one specific project.

Patreon is generally more relaxed in the sort of campaigns it allows than Kickstarter or Indiegogo — you can probably get away with producing “edgier” content than with the other two. As for fees, Patreon takes 5% off the top, with payment processing fees coming to approximately 5% as well.

Final Thoughts

Life’s not easy for the freelancer. With all the other challenges you face, securing the funding you need can seem like an insurmountable hurdle. Thankfully, there are many viable funding options out there for the freelance business owner determined to make it work.

Be sure to explore multiple options in your funding quest so you can weigh each option on its relative merits. Now go forth and let your freelance flag fly!

The post Loans For Freelance Businesses: Your 13 Best Options appeared first on Merchant Maverick.

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How To Use GoFundMe To Fund A Business In 8 Steps

go fund me for business start up

With over $5 billion raised on the platform since its inception in 2010, GoFundMe has a reputation for helping to cover the costs of personal emergencies in a world where most of us are just one missed paycheck away from ruin. But while the company has become synonymous with charitable crowdfunding, you might not realize that GoFundMe can be used to fund a business as well. Want proof? Here are the categories you can choose from when creating your GoFundMe campaign:

 

go fund me for business

Now, don’t get me wrong: If your entrepreneurial venture is a high-tech startup with exponential growth potential, or if you’re creating the next tabletop gaming sensation, you’re going to be better off going with a more commercially-oriented crowdfunding platform like Kickstarter (see our review) or Indiegogo (see our review), or perhaps one of the new equity crowdfunding sites that have popped up in recent years.

However, for the right kind of startup business — preferably one with a local/community focus and with a compelling story to tell about overcoming adversity — GoFundMe is an attractive fundraising option. One big reason? GoFundMe charges no platform fee to individual campaigns launched from the US, UK, and Canada. The typical crowdfunding site takes 5% of what you raise.

I’ll give three real-world examples of people using GoFundMe to fund a business and finding success.

  • Two Detroit students raised $3,000 to fund their socially-conscious waffle cookie company
  • Owners of a San Francisco restaurant raised $50K to get out of debt
  • A veteran raised $2,000 to start his own motorcycle repair shop

Read on for the eight steps you should follow to get money from GoFundMe to start your own business.

1) Make Sure Your Business Is Right For GoFundMe

Before you go about using GoFundMe to start a business, consider whether your startup is a good fit for GoFundMe. Many of the startups currently using crowdfunding to great effect are in industries that thrive on platforms like the aforementioned Kickstarter: makers of apps, gadgets, and games who typically don’t have an offline presence in the form of a restaurant or shop. Likewise, Patreon (see our review) has become a leading crowdfunder for podcasters, musicians, graphic artists, and other creatives whose work is easily disseminated online.

Crowdfunding with GoFundMe is a different matter, however. Donors tend to contribute to GoFundMe campaigns not to get in on the latest tech trend or trendy tabletop game, but to make a positive difference in the life of people in need or to benefit their community as a whole. Look at the sort of businesses that have had successful GoFundMe campaigns and you’ll note that they typically feature some combination of a) a business that has a positive impact on public life in a community and b) an entrepreneur/business owner with either a sympathetic and compelling personal story to tell or a mission related to charity or social justice.

If neither a) nor b) applies to you and your business, you’d be better off seeking funding from one of the other crowdfunding outfits I’ve mentioned. If at least one of the two does apply to your efforts, you stand a decent shot at making GoFundMe work for your business.

go fund me for business

2) Develop A Business Plan & A Realistic Funding Goal

Have a business plan ready before you start publicly campaigning for money. In particular, make sure you set a funding goal that you expect to actually be able to meet. Define exactly what it is that you plan to do with the money you expect to raise so that in the event you reach your funding goal, you know what to do next.

Of course, all the best-laid plans on Earth won’t help you if you don’t actually raise any money. One way to increase your chances of crowdfunding success is to offer cool rewards to people who donate to your campaign.

3) Offer Multiple Reward Tiers

Remember when I said that GoFundMe donors are motivated mainly by the desire to do good? This may be the case, but you’re still competing for the limited attention of donors with all the other campaigns listed on the site. This is when rewards come into play.

With GoFundMe, as with Kickstarter and many other crowdfunders, you can offer multiple levels of rewards to those who contribute to your campaign. This means that you can offer increasingly higher-value rewards to people who donate larger amounts of money. My advice would be to take advantage of this crowdfunding feature and offer multiple reward tiers to your would-be donors. Give people a reason to feel invested in your success!

While branded trinkets and t-shirts might draw some people in, rewards that give people a taste of your product or service are even better. Offer discounts, coupons and/or gift cards for whatever you have to offer. Get people in the habit of frequenting your business and they’ll be more likely to give you their business on an ongoing basis.

4) Refine Your Campaign Pitch

When creating your GoFundMe campaign page, you’ll obviously want to make it as appealing as possible.

  • Post A Fun Campaign Video: Keep it to around two minutes so you don’t lose viewers’ fickle attention, but don’t be afraid to show a personal touch, as people prefer authenticity and humor to slick sales pitches. You should at least allude to the personal challenges you’ve faced in growing your business. After all, this is GoFundMe, where tugging at the ol’ heartstrings is expected.
  • Make Your GoFundMe Campaign Page As Attractive As Possible: Use high-resolution images to promote your campaign. Preferably images that feature both you and your place of business. Remember: the personal touch is key.
  • Write A Descriptive Title: Try to summarize what your campaign is all about with one phrase. Don’t just write “Business Needs Help” — that doesn’t tell anyone anything or capture their interest. A good, catchy title can help distinguish your campaign from the thousands of others like it!

5) Seek Support From Friends & Family Before Launch

Not to diminish the importance of marketing your campaign to the public at large, but your most important source of support is likely to be your personal network: friends, family, co-workers, acquaintances, etc. Not only are they likely to contribute a significant proportion of what you raise, but it’s essential to secure their support before your campaign goes public. That way, when you launch your campaign, strangers who come across it won’t see “$0” as the amount raised. Success breeds success, and it’s easier to attract public support when you’ve already secured a decent chunk of funding.

You can have family members donate anonymously if you don’t want people knowing how much of your support comes from relatives!

6) Market Your Campaign Via Social Media & Email

To build buzz around your GoFundMe campaign, you’ll need to market it on your social media channels. Use Facebook, Twitter, Instagram and the like to spread the word about your story and your campaign. If you can, try to collect the email addresses of those interested in your campaign in order to build a mailing list in which you can give updates on your business’s progress and whatever other behind-the-scenes material you like. You can use services like MailChimp (see our review) to keep your followers updated with attractive template-based emails in which you can detail your progress.

Try to develop some press contacts as well. This way, when you’re ready to launch, you can alert them ahead of time.

7) Keep Everybody Updated After Your Campaign Launches

There’s a reason it’s called a campaign — you have to work hard to keep the contributions flowing! The uncomfortable truth is that most crowdfunding campaigns, whether they be for business or personal causes, don’t reach their funding goals. If you want to beat the odds, a compelling story and a nifty video won’t be enough. You’ll need to work on your campaign continuously as if it were your job.

Once your campaign is in full swing, keep everyone informed with frequent updates. Don’t just post updates to your GoFundMe page — make sure to send out updates through all your social media channels as well. Go ahead and get personal with your updates. Don’t just rattle off a list of statistics. Document your continuing personal involvement in your campaign for business funding. Be sure to respond to anyone with questions about what you’re doing, both on your GoFundMe page and on social media.

8) Stay Engaged With Your Backers Post-Campaign

Let’s say you overcome your challenges and meet your funding goal. Fantastic! Now, what are you going to do with the contacts you’ve made, the followers you’ve attracted, and the mailing list you’ve started? If you want your business to thrive, you won’t just let them drift away.

Consider an email drip campaign to keep your contacts appraised of your latest doings and to offer special promotions. Stay active on the social media channels you used to such great effect during your campaign. Maintain the relationships you developed with your first customers, as these people will be your most important evangelists, spreading the good word about your business and the friendly, personable owner who treated them so nicely.

In this lonely, atomized world we unconscionably created, people long to experience community. Provide them with one, and they will reward you.

Final Thoughts

Crowdfunding is hard. As I mentioned at the start of this article, most crowdfunding campaigns fail. There’s a reason why crowdfunding hasn’t solved the problems of startup undercapitalization or bankruptcy-inducing medical expenses. However, if you prepare beforehand, build a community of supporters, and approach the task like a job, you’ll greatly increase your chances of success when using GoFundMe to start a business.

Check out the links below to learn more about GoFundMe.

Read our full GoFundMe review

Visit the GoFundMe website

The post How To Use GoFundMe To Fund A Business In 8 Steps appeared first on Merchant Maverick.

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10 Great Real Estate Crowdfunding Platforms For Businesses

real estate crowdfunding platforms

When crowdfunding rose on its initial wave of popularity, it was strictly a means of raising money for personal causes and makers of board games and household gadgets and whatnot. That all changed with the passage of the JOBS Act of 2012. The JOBS Act was sold as a response to the lack of capital available to startups in the wake of the Great Recession. It legalized the crowdfunding of securities so that campaigners could raise money from investors in a public campaign.

From there, it was natural that real estate developers would turn to crowdfunding as a new way of attracting investment. Six years after the passage of the JOBS Act, crowdfunding real estate has become quite the growth industry, with countless real estate crowdfunding sites popping up, offering equity and/or debt crowdfunding deals to accredited investors, and, in many cases, non-accredited investors as well.

With the crowdfunding industry projected to be worth in excess of $300 billion by the year 2025, there’s never been a better time for those in the real estate business to consider crowdfunding as a means of reaching investors who would otherwise be inaccessible. Here are 10 of the most popular and well-regarded real estate crowdfunding platforms out there.

1) PeerStreetcrowdfunding real estate

Self-described as a “marketplace lending platform for real estate debt,” PeerStreet was founded in 2013 by real estate attorney Brew Johnson and former Google executive Brett Crosby as a means of giving accredited investors access to real estate investment opportunities. PeerStreet has originated over $500 million in real estate loans as of October 2017. Most remarkably, PeerStreet claims to have not lost a single dollar in investor principal throughout its entire existence.

Let’s get the skinny on PeerStreet’s real estate crowdfunding marketplace.

Best For…

Real estate companies seeking to connect to investors online.

How Does PeerStreet Work?

PeerStreet states the following regarding their loans:

PeerStreet loans are generally secured by first liens on real estate. PeerStreet partners with top-tier originators across the country and carefully vets their loans before making them available to our investors. Most of our loans are short in duration (6-24 months) with LTVs typically below 75%.

PeerStreet applies a servicing fee of between 0.25%-1.00% on each loan offered. Their loans offer, on average, 6-12% annualized returns.

PeerStreet Rules

PeerStreet runs extensive due diligence on both the loans advertised on its site and on its loan origination partners. Before a loan can be featured on PeerStreet, the company does the following:

  • Performs independent underwriting of all loans using both manual processes and big data analytics
  • Reviews an independent valuation (BPO/Appraisal)
  • Ensures each loan complies with PeerStreet’s underwriting guidelines
  • Reviews legal documentation

For loan origination partners, PeerStreet performs the following checks:

  • Reviews track records
  • Reviews financials
  • Reviews licensing and adherence to state usury laws
  • Runs background checks
  • Reviews legal and underwriting processes

PeerStreet’s campaigns have an investment minimum of just $1,000 — lower than the typical $10K investment minimum.

How To Start A PeerStreet Campaign

Contact PeerStreet with details of your loan campaign proposal and wait to hear what they think.

Takeaway

PeerStreet’s reputation among investors is second-to-none, so attracting investors to your real estate crowdfunding project may be easier than with other platforms. Their policy of complete transparency to investors (PeerStreet investors can review the performance of every loan ever featured on the site) and strict vetting for loans and loan originators makes PeerStreet a standout company among real estate crowdfunding platforms.

Visit the PeerStreet website

2) RealtySharescrowdfunding real estate

With over $700 million in real estate investments facilitated since its founding in 2013, RealtyShares is at the tip of the real estate crowdfunding spear. Both equity and debt crowdfunding are available, and every deal on the site is strictly vetted before being allowed to campaign. Read on to learn more about this heavyweight real estate crowdfunding contender.

Best For…

Connecting real estate businesses and projects — both commercial and residential — to accredited investors.

How Does RealtyShares Work?

RealtyShares names three different types of real estate investments that can be listed on its site.

(1)  Cash-flowing/Value-Add equity investments in commercial and residential properties such as apartments, retail, office and pools of single family homes;

(2)  Equity investments in Fix & Flips located in high demand/low supply markets;

(3)  Loans secured by residential and commercial real estate.

On the loan side, RealtyShares lists fixed-rate bridge loans, floating-rate bridge loans, small balance permanent loans, and triple-net loans. On the equity side, RealtyShares lists common and preferred equity offerings. Rates and fees for RealtyShares’s various debt and equity products are given on the website at the links provided.

RealtyShares Rules

RealtyShares does its due diligence for investors by running background and credit checks on all funding campaign sponsors. As for the cost of running a campaign, RealtyShares says the following:

Real Estate Companies that raise capital through our investment platform will be required to reimburse RealtyShares for its out of pocket expenses related to establishing and managing the fund that invests in your project.  These costs typically include legal, accounting and compliance costs.

The exact amount of the reimbursement will depend on the specific investment opportunity. Please contact us here for more details.

Only accredited investors can invest in a RealtyShares campaign. The minimum investment amount is $5,000.

How To Start A RealtyShares Campaign

Create an account on RealtyShares’s site and submit an application. The company will get back to you within 24-48 hours to let you know if you’ve been accepted. It will then request additional information. You’d better know what you’re doing, as RealtyShares states “Currently, only a small percentage of prospective investments are listed on the site.”

Takeaway

RealtyShares has a reputation for being one of the top platforms for crowdfunding real estate deals. Having financed over 1,000 projects in 39 states thus far, the company has a proven track record and is a solid choice indeed for the real estate business looking to source investment.

Visit the RealtyShares website

3) RealtyMogulreal estate crowdfunding sites

Launched in 2013 and headquartered in Los Angeles, RealtyMogul offers both equity and debt financing for real estate projects. Over $338 million has been invested thus far through RealtyMogul, financing over 350 commercial and residential properties valued at over $1.5 billion.

Let’s see what makes RealtyMogul tick.

Best For…

Raising equity for commercial projects and conducting debt crowdfunding for both commercial and residential real estate.

How Does RealtyMogul Work?

RealtyMogul’s FAQ details how their campaigns work, but here are some pertinent details. Real estate companies can raise from between $1 million and $5 million from accredited investors in an equity campaign for commercial real estate. Terms, rates, and fees for RealtyMogul equity raises can be found here.

RealtyMogul also offers debt campaigns for both commercial and residential real estate. Most of these loans are sold to institutional investors. RealtyMogul offers hard money loans, bridge loans, and permanent loans. Information regarding terms and fees can be found here.

RealtyMogul Rules

RealtyMogul runs background, criminal and credit checks on all who apply to campaign.

How To Start A RealtyMogul Campaign

You begin the application process on the website, providing information about your firm, the property in question, and other details. A company representative will then contact you, take you through the due diligence process, and work with you in setting up your campaign.

Takeaway

Through RealtyMogul, the Hard Rock Hotel Palm Springs raised more than $1.5 million in equity financing in what was the first equity crowdfunding campaign ever conducted by a hotel. A pioneer in the industry, RealtyMogul’s track record inspires confidence.

Visit the RealtyMogul website

4) MinnowCFundingcrowdfunding real estate

Founded in 2017, MinnowCFunding is a recent entry to the real estate crowdfunding race. Headquartered in Los Angeles, MinnowCFunding is a “funding portal” as defined by the law. This means it can offer Regulation Crowdfunding, or equity crowdfunding with non-accredited investors. MinnowCFunding does not offer debt crowdfunding.

MinnowCFunding consists of “a team of real estate veterans and advisors with over 50 years of collective experience underwriting and managing residential and commercial real estate.” Let’s learn more, shall we?

Best For…

Real estate companies looking to conduct equity crowdfunding campaigns that are open to all investors, not just accredited investors.

How Does MinnowCFunding Work?

Through MinnowCFunding, equity campaigns can be launched for the following real estate types:

  • Residential rental real estate
  • Commercial real estate
  • Industrial real estate
  • Retail real estate
  • Mixed-use real estate

Due to legal limits on Regulation Crowdfunding, a maximum of $1.07 million can be raised per year by any single entity.

Be warned that MinnowCFunding takes 7% of what you raise as a platform fee.

MinnowCFunding Rules

Companies looking to campaign for equity must undergo strict vetting: “Our experienced real estate and financial experts review the credentials and plans of the investment target.”

The minimum investment amount for a MinnowCFunding campaign is just $1,000.

How To Start A MinnowCFunding Campaign

Contact MinnowCFunding with your crowdfunding proposal and see what their agents tell you. The company doesn’t yet have a lot of information posted regarding the application process.

Takeaway

MinnowCFunding is the new kid on the block when it comes to real estate crowdfunding, yet they’ve generated a fair amount of buzz in the short time they’ve been around. Those in the real estate industry interested in Regulation Crowdfunding should give them a look.

Visit the MinnowCFunding website

5) AlphaFlowreal estate crowdfunding platforms

Judging by the name, you might assume AlphaFlow was some kind of non-FDA-approved prostate supplement. However, you would be libellously wrong. Shame on you.

Founded in 2015, AlphaFlow, in their own words, “purchases first lien mortgage notes from top-tier originators around the nation, providing non-conventional liquidity to residential real estate lenders..” Let’s look at AlphaFlow in greater detail.

Best For…

Connecting real estate companies to investors via loan originators. The loan originator offers the investor a balanced portfolio of diversified real estate investments — the investor doesn’t actually choose the individual projects to invest in.

How Does AlphaFlow Work?

AlphaFlow works with companies like PeerStreet to find residential debt crowdfunding campaigns. They take what they believe to be the best campaigns, make sure they are spread out across the US, and build portfolios to offer investors so the investor doesn’t have to do the heavy lifting.

AlphaFlow describes their loan products as follows:

  • Asset-backed (first-lien) mortgage note
  • Loan amounts between $75K-$2MM
  • 6-12 month duration
  • 7% + interest rate
  • Personal guarantee
 AlphaFlow Rules

The company states the following regarding loan originators wishing to use the platform:

AlphaFlow conducts extensive due diligence on each originator partner. Lender onboarding entails strict review of the firm’s management staff, historical loan performance, underwriting guidelines, quality control metrics, and onsite review by AlphaFlow of their lending operations.

How To Start An AlphaFlow Campaign

Individual real estate companies don’t apply to raise funds on AlphaFlow. Rather, lending platforms apply to AlphaFlow, and if the platform is onboarded, it serves as a source of residential debt deals from which AlphaFlow draws to build its portfolios for investors.

Takeaway

AlphaFlow makes investing in real estate easy by offering portfolios comprised of diversified, pre-vetted residential loans.

Visit the AlphaFlow website

6) Fundrisereal estate crowdfunding sites

Launched in 2012, Fundrise’s brand of real estate crowdfunding is somewhat akin to that of AlphaFlow. Fundrise’s investors see their investments spread out over the company’s portfolio, which includes both commercial and residential real estate. The investor doesn’t choose which projects to invest in.

Investors invest in Fundrise’s portfolio through the vehicles of the eREIT (an electronic Real Estate Investment Trust — it resembles a mutual fund for real estate projects) and the eFund (similar to the eREIT).

Best For…

People who want to invest in real estate but don’t want to choose the individual investments.

How Does Fundrise Work?

Fundrise sources real estate investment from around the US, then offers anybody and everybody (not just accredited investors) the chance to invest in Fundrise’s portfolio.

Fundrise doesn’t publicly release the duration, interest rates, etc. of their loan products. On the investor side, Fundrise allows investments of as little as $500 and takes a 0.85% annual asset management fee.

Fundrise Rules

There are no limits as to who can invest with Fundrise. As for real estate companies looking to raise funds with Fundrise, the company is not publicly seeking new projects right now, so no rules for companies looking for investment are given.

How To Start A Fundrise Campaign

You can’t apply for funding through Fundrise’s website, so you’ll have to contact the company via other channels if you have an irresistible deal to propose.

Takeaway

Fundrise is known for its supreme ease of use for the investor. It’s a great way for the average person to invest in something that is independent from the stock market.

Visit the Fundrise website

7) Patch Of Landcrowdfunding real estate

Born in 2013, Patch Of Land is a hard-money debt crowdfunding site for real estate investments — mostly residential, but some commercial. The company was founded by Jason Fritton (who lobbied for the passage of the JOBS Act that made real estate crowdfunding possible in the first place), and his brother Brian.

On Patch Of Land’s About page, the company posts the following mission statement:

Patch of Land aims to solve the problem of slow, inefficient, fragmented and obscure private real estate lending by using the latest technology, data and process efficiency to more accurately assign risk profiles and project viability, while greatly reducing time and cost of loan underwriting for borrowers with real estate projects that are overlooked or rejected by banks and traditional lenders.

Best For…

Real estate companies and the investors who love them.

How Does Patch Of Land Work?

For real estate projects, Patch Of Land offers three different types of loan program:

  • Fix & Flip Loan Program
  • Rental Loan Program
  • Commercial Loan Program

Details of each loan program are given at the link. One thing each has in common is that you can campaign for a maximum of $3 million USD.

Patch Of Land details the performance of its loans here. Some of the highlights: Patch Of Land has funded 986 loans to the tune of over $442 million with a realized rate of return of 10.88%. (Numbers current as of 3/25/18)

Patch Of Land Rules

Regarding the due diligence process, Patch Of Land states:

We will conduct due diligence process and review all the required documentation, including an appraisal. Typically we can close your loan in as little as seven days. Our process is transparent; we do not charge “junk fees” or hidden fees of any kind.

How To Start A Patch Of Land Campaign

Patch Of Land details the application process for borrowers here. Perhaps the highlight of the process is the fact that filling out the application, according to the company, takes only five minutes.

If you’d rather speak to a person about your prospective funding campaign, call a Patch Of Land agent at 1-888-959-1465 with details of your project.

Takeaway

Check out Patch Of Land’s track record and see if they might be the real estate funding solution you’re looking for.

Visit the Patch Of Land website

8) GroundFloorcrowdfunding real estate

GroundFloor provides debt crowdfunding for residential real estate developers. Founded in 2013 in Atlanta, GroundFloor offers fix-and-flip hard money loans for both accredited and non-accredited investors to, well, invest in.

You can invest as little as $10 in a GroundFloor crowdfunded real estate loan. Yes, $10, no typo. Though, I’m not entirely sure what the point of that would be.

Currently, GroundFloor can only be used in a limited number of US states. I’ll tell you which ones in a bit.

Best For…

Financing fix-and-flip real estate projects.

How Does GroundFloor Work?

GroundFloor describes their loans thusly to borrowers:

  • Rates starting at 5.4%
  • Fix-and-flip hard money loans from $75,000 to $2,000,000 for residential properties (Please note: cannot be owner-occupied)
  • Closing as fast as 15 days
  • Monthly payments or balloon payment at maturity date
  • All points can be rolled into the loan
  • No personal guarantee required
  • Lend up to 70% ARV (after repair value)
  • Borrow up to 90% LTC (loan to cost)
  • Fast and simple application with minimal documentation (no tax returns, no bank statements)

GroundFloor also touts 8-12% annualized returns on average on their loans with 6-12 month terms.

GroundFloor Rules

Of course, GroundFloor doesn’t let projects crowdfund loans without doing some vetting:

The product is based on venture loans to real estate entrepreneurs, originated and serviced by Groundfloor. Prior to offering, every loan is pre-funded by Groundfloor after a thorough vetting of the borrower’s experience, credit worthiness, and business plan, plus an assessment of the property value on an as-is and as-improved basis.

As of this moment, you can only raise funds through GroundFloor in the following states: Massachusetts, Maryland, DC, Virginia, Georgia, Illinois, Texas, Washington, and California. However, GroundFloor recently announced that due to their offering having just been qualified by the U.S. Securities & Exchange Commission under Tier II of Regulation A, they will be operating in all 50 states in short order. Just not quite yet.

Note that in a recent press release, the company said: “Groundfloor has not historically charged any investor fees, but may elect to begin doing so in the near future.”

How To Start A GroundFloor Campaign

If you reside in one of the aforementioned states, apply online and see what GroundFloor says. Alternately, call the company at 678-701-1194 and strike up a chat.

Takeaway

GroundFloor may only be getting started, but they seem to be making some moves to gain a foothold in the industry.

Visit the GroundFloor website

9) EQUITYMULTIPLEreal estate crowdfunding sites

With an all-caps name that makes me feel like I’m yelling at you just by typing it, EQUITYMULTIPLE offers commercial real estate crowdfunding in the form of syndicated debt, equity, and preferred equity raises.

EQUITYMULTIPLE is a young company, having been founded in 2015. However, extolling their familiarity with the field, EQUITYMULTIPLE states:

Experience matters. While other platforms are backed by venture capital companies, we’re backed by a real estate company – Mission Capital, a recognized national leader in commercial real estate debt & equity finance.

Best For…

Commercial real estate developers looking for crowdfunded investment, investors looking for real estate deals, and people who like shouting.

Only accredited investors can invest through EQUITYMULTIPLE.

How Does EQUITYMULTIPLE Work?

Here are the details of EQUITYMULTIPLE’s syndicated debt offerings:

  • Target Rate to Investors: 7-12%
  • Typical LTV: 50-75%
  • Typical Term: 6-24 months

The details for the company’s preferred equity offerings:

  • Target Current Preferred Return: 6-12%
  • Target Total Preferred Return: 50-75%
  • Typical Term: 1-3 years

Lastly, the company’s regular equity offerings:

  • Target Annual Cash Return: 6-12%
  • Target Internal Rate of Return to Investors: 14%+
  • Typical Term: 1-3 years

EQUITYMULTIPLE Rules

Regarding due diligence, EQUITYMULTIPLE describes the platform’s vetting process:

We will provide a comprehensive diligence request list. Once these items are received, our team will determine if the deal meets the requirements of EQUITYMULTIPLE’s investor network. During this time, the Sponsor and EQUITYMULTIPLE will begin discussions surrounding the terms of the anticipated Offering.

How To Start An EQUITYMULTIPLE Campaign

EQUITYMULTIPLE’s deal submission and funding process is detailed here. One key point: once you submit your deal, EQUITYMULTIPLE “will get back to you within two business days with follow-up questions or preliminary approval.”

Takeaway

EQUITYMULTIPLE is a real estate crowdfunding platform just finding its sea legs. Keep an eye on these folks.

Visit the EQUITYMULTIPLE website

10) Small Changereal estate crowdfunding sites

Launched in 2014 and headquartered in Pittsburgh, Small Change may not have the longest track record, but the equity real estate crowdfunding platform distinguishes itself by associating its brand with social responsibility:

We created Small Change to allow everyday people to invest in real estate projects that change cities and neighborhoods for the better, and we created our proprietary Change Index to track that change.

The Change Index is a way for Small Change to assess real estate developments in terms of their access to public transportation, the walkability of the area, access to parks and fresh food, and other factors.

Best For…

Developers of residential, commercial, and mixed-use properties that score sufficiently highly on the company’s Change Index. Non-accredited investors can invest in some projects, while others are strictly for accredited investors.

How Does Small Change Work?

Small Change advertises average returns of between 8-10%. The minimum investment amount on a Small Change project is just $500.

Small Change doesn’t provide much in the way of details as to how their investments perform. Hopefully, this will change in the future.

Small Change Rules

The company’s Change Index is a fairly comprehensive scoring system for how beneficial a real estate development is to the wider community. Projects must hit a certain target score on each metric before being allowed to use the platform. I recommend reading the details of the Index carefully if you’re thinking about using Small Change for your real estate venture.

How To Start A Small Change Campaign

You’ll have to create an account and get in touch with the company to ask about getting your project on the platform. Small Change doesn’t provide any granular detail as to how to do this.

Takeaway

It’s good that at least one real estate crowdfunder seems aware of the fact that not all real estate developments benefit the community and that such developments should be viewed through the prism of social responsibility. For that, I tip my cap to Small Change and the Change Index.

Visit the Small Change website

Final Thoughts

Real estate crowdfunding can hardly be said to be a mature industry at this point. After all, it’s only about six years old. As such, the industry is in flux, and my list of leading real estate crowdfunders would undoubtedly be different if I were to write this article in another few years.

That’s not to say real estate crowdfunding can’t work for you right now — indeed, evidence indicates quite the contrary. Check out the companies I’ve listed above if you want to get a good picture of where the industry stands today.

The post 10 Great Real Estate Crowdfunding Platforms For Businesses appeared first on Merchant Maverick.

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Real Estate Crowdfunding: Is It Right For Your Business?

real estate crowdfunding

With the increasing prominence crowdfunding has attained over the course of the last decade, I’m sure you’re broadly familiar with the concept of crowdfunding. You’ve probably heard of people using GoFundMe (see our review) to try to cover medical expenses and other personal emergencies. You’ve probably also heard of crowdfunding a la Kickstarter (see our review) in which backers contribute to the funding of a board game or gadget or male romper in exchange for rewards in the form of the board game/gadget/romper in question and/or related goodies.

the office swag GIF

However, if you’re involved in a real estate venture, it’s now possible to solicit investment in real estate via crowdfunding as well. As I’ll explain, this is a relatively recent phenomenon, but by allowing owners of real estate to launch public crowdfunding campaigns, funding can be drawn from a much broader pool of investors than was previously possible.

Let’s talk about exactly what real estate crowdfunding is and how it can benefit your real estate business.

Real Estate Crowdfunding & The Jobs Act

Prior to 2012, it was illegal to offer investment in the form of a public campaign in the US, as public solicitation of securities was forbidden by SEC rules. Therefore, real estate crowdfunding was out of the question.

However, the idea of what crowdfunding could be changed significantly when the JOBS Act of 2012 was signed into law. The passage of the Act was framed as a response to the lack of capital available to startups in the wake of the Great Recession, as it legalized the crowdfunding of securities. Subsequently, a great number of real estate crowdfunding sites have popped up.

What Is Real Estate Crowdfunding?

confused math GIF by CBC

Let’s be precise when we discuss real estate crowdfunding. The term encompasses two different forms of crowdfunding: equity-based and debt-based.

Equity-Based Real Estate Crowdfunding

When you open up your real estate venture to equity investment, investors become co-owners of the property in question and stand to profit in proportion to their ownership stake in the property. These profits come in the form of rental income and/or property appreciation.

Debt-Based Real Estate Crowdfunding

With debt-based real estate crowdfunding, you offer investors the chance to lend to you. In return, the investor is paid back the principal plus interest. Mortgages and hard money loans are examples of debt investments in a real estate context.

(For more general information on the differences between different forms of crowdfunding, our article “Types of Crowdfunding For Business: Debt, Equity, Or Rewards” is a good place to start.)

What Do These Differences Mean For Your Campaign?

The substantive difference between these two forms of real estate crowdfunding is that debt investment is safer than equity investment for the investor, but also less potentially lucrative. If something goes wrong and the property in question is foreclosed on, debtholders get paid before equity holders do, so there’s a smaller potential downside for the debt investor. Equity investors bear much more risk.

On the other hand, if the real estate venture does particularly well, equity investors get a share of the windfall profits whereas debt investors do not — they simply get interest on the loan. Equity investment is more high-risk-high-reward than debt investment when it comes to real estate. Keep in mind the type of investments your particular real estate project is likeliest to attract when setting the terms and structure of your real estate crowdfunding campaign.

In order to do this, however, you’ll need to understand what the capital stack is.

pancakes GIF

What Is The Capital Stack?

The capital stack is key to understanding commercial real estate financing (not so much residential real estate). The capital stack is comprised of the different layers of financing arrangements that go towards funding real estate projects. It delineates where investors stand in the pecking order relative to one other.

This is how investors are prioritized, with the highest-priority investors on the bottom:

  • Common Equity (lowest priority)
  • Preferred Equity
  • Mezzanine Debt
  • Senior Debt (highest priority)

Essentially, the risk increases the higher you are on the stack, but so do the returns. Here’s more information on the capital stack.

What Businesses Stand To Gain From Real Estate Crowdfunding?

Let’s discuss the two primary types of businesses that stand to benefit from this new market sector. The first should be fairly obvious.

Real Estate Developers

I can hear you right now: “No kidding, genius.” Of course real estate crowdfunding would appeal to real estate developers. The thing is, it’s the newer developers who stand to gain the most benefit from real estate crowdfunding. That’s because the more established firms have extensive pre-existing relationships with investors and other sources of equity. Crowdfunding isn’t necessarily going to be a priority for them.

Those who have entered the real estate business more recently, however, have every reason to explore crowdfunding. Launch a crowdfunding campaign through one of the many real estate crowdfunding sites out there, and you’ll gain access to investors that you just didn’t have previously — and these investors are the very investors who simply didn’t have easy access to real estate investment opportunities before crowdfunding and the JOBS Act came along.

Many real estate crowdfunders add value by pooling investors into an LLC or other entity specifically set up for the purpose. That way, investors don’t have to be dealt with individually.

Who else can take advantage of real estate crowdfunding to fund their business, you ask?

Real Estate Crowdfunding Platform Owners

This answer shouldn’t come as a shocker either. Think about it, though: real estate crowdfunding is a very new industry, having only just been legalized by the JOBS Act. There may never be a better time to get in on the ground floor of the industry than right now.

Of course, before you launch your real estate crowdfunding business, you’ll need to determine a) what types of financial products can be offered to investors on your site, b) what category of real estate to specialize in (commercial, residential, etc), c) how to build your web platform, and d) how best to market your platform to attract the attention of investors. But if you do your due diligence and manage to answer these big questions, you’ll be entering a field poised to expand by leaps and bounds over the next decade.

It’s estimated that the crowdfunding industry as a whole will be worth more than $300 billion by the year 2025. There are bound to be hiccups along the way, but if you’re thinking that the industry might be for you, this is the time to give it the ol’ college try.

Final Thoughts

1995 was a great time in which to launch an internet search engine. 1970 was a good time to get in on the polyester industry. Some industries present particular opportunities to attuned entrepreneurs at certain defined points in history. Are we in one of those periods now with respect to real estate crowdfunding? Obviously, nobody can say for sure, but all signs point to “Yes.”

Crowdfunding involving investments is legally complex, and federal prosecutors have unlimited resources. Therefore, be sure to get legal guidance from professionals before making the leap into real estate crowdfunding. But if you have the means and the inclination, this is the time to make your move. Don’t be left holding a bag full of woulda-coulda-shouldas while less-talented entrepreneurs rake in those real estate crowdfunding dollars that could have been yours!

The post Real Estate Crowdfunding: Is It Right For Your Business? appeared first on Merchant Maverick.

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8 Facts You Should Know Before Crowdfunding A Video Game On Fig

fig crowdfunding

For as long as I can remember, people have bemoaned the ever-accelerating consolidation of the video game industry. For much of the past two decades, small-to-mid-size game developers have been going bust as industry behemoths like EA grow ever more dominant. For those who have followed the industry, it’s an ever-present trend and one that is not likely to abate anytime soon.

However, the second decade of the twenty-first century has given rise to a phenomenon that could be seen as a countervailing force to this trend; a social media-powered boat, gamely pushing upstream against The Market’s unloved current. Crowdfunding pools the resources of those who want a piece of the next big thing, delivering grassroots funding to projects that would otherwise struggle to get funding.

Anyone with a cursory familiarity with crowdfunding could tell you what Kickstarter (see our review) and GoFundMe (see our review) are, but lesser-known specialty crowdfunders continue to pop up, catering to the particulars of individual industries.

Enter Fig. Launched in 2015 in San Francisco, Fig is a platform on which independent game developers and mid-size game studios can get video games crowdfunded. However, Fig is more than just a “Kickstarter for Video Games.”

It’s a unique crowdfunding system and one that presents unique challenges to those looking to use crowdfunding to finance their gaming dreams. Let’s go through what you need to know before using Fig’s crowdfunding platform for game developers.

1) Fig Provides Both Rewards Crowdfunding & Equity Crowdfunding For Video Games

With Fig, you can set up a crowdfunding campaign for your incipient game project that gives the would-be backer two options: back a traditional rewards crowdfunding campaign in exchange for a copy of the game, branded swag, expansion packs, etc., or back an equity crowdfunding campaign in which the backer becomes an investor who buys Fig Game Shares and thereby stands to profit from future sales of the game.

Actually, I lied. The backer also has a third option: back both!

You probably have a decent handle on what rewards crowdfunding is, but with Fig’s equity crowdfunding, investors fund your game’s development by buying Fig Game Shares (more on how Fig Game Shares work later). At the end of the process, the profits from sales of your game are divided between your company, Fig, and the equity investors who bought Fig Game Shares in your game

2) You Can Run Both A Rewards And An Equity Campaign Or Just A Rewards Campaign

I said in the introduction that Fig wasn’t just “Kickstarter for video games.” However, if you’re not trying to raise six or seven digits’ worth or capital, you can, in fact, treat Fig as if it were Kickstarter and just run a rewards crowdfunding campaign. Describe/show off your cool game, offer various rewards for different tiers of support, and hope to raise your goal within your funding period.

However, most Fig campaigners opt to run both a rewards campaign and an equity campaign concurrently. This way, you can attract support from the more casual backer who may want to see your game produced and ultimately receive a copy, as well as the investor who sees profit potential in your game idea and wants to support it in exchange for a cut of future sales.

Check out the campaign page for Pig Eat Ball if you want to see what Fig’s unique brand of rewards/equity hybrid crowdfunding looks like in action.

3) Fig Is Selective

Some crowdfunding platforms allow anybody who signs up and creates a profile to launch a crowdfunding campaign on their platform. Not Fig. According to the company, when a developer applies to use the platform:

We evaluate the game and the developer to determine whether, in our opinion, they have the potential to generate significant income based on criteria such as experience and talent of the developer, the developer’s record for delivering games on time and within budget, our estimates of potential sales of the game and the extent of the game’s existing social community and fanbase.

Also note that Fig only hosts one or two new funding campaigns per month. When considering whether to send your pitch to Fig, determine whether you can afford to, in effect, wait in line for your chance to be featured on the site.

4) Funding Is All-Or-Nothing For Both Rewards And Equity Campaigns

Just about every crowdfunding platform requires you to set some kind of funding goal before launching your campaign. Some crowdfunders let you keep whatever money you end up raising regardless of whether or not you’ve reached your funding goal before your funding period ends.

Not so with Fig. Launch a Fig crowdfunding campaign, and you’ll have to meet or exceed your funding goal before you can collect. Fail to reach your funding goal, and you’ll get nothing at all. This goes for both rewards and equity campaigns. You’ll want to have done your due diligence before launching your campaign with Fig, as an 80% funded project will see you get 0% of the cash.

5) Investors Aren’t Actually Buying Shares Of Your Company

Launch an equity crowdfunding campaign with Fig and you won’t have to worry about investors owning a portion of your intellectual property. That’s because with Fig’s unique equity crowdfunding system, the investor invests in stock created by Fig to pay dividends based on the sales receipts from the game post-release. Fig describes the system like so:

Developers maintain 100% creative control and IP ownership over their game. The community invests in Fig Game Shares, which pay out based on Fig’s own revenue share gained through a licensing agreement with the developer, and Fig takes on the accounting and legal risk associated with the investments as it’s our stock. Developers are not involved in selling investments, nor are investors investing in studios or IP.

Here’s where you can learn more about Fig Game Shares. Essentially, they allow you to retain full ownership of your company and its products while offering investors the chance to profit from your future game sales commensurate with the proportion of Fig Game Shares they purchased.

6) Fig’s Rewards Crowdfunding Campaigns Carry No Platform Fees

If you’re using Fig as if it were Kickstarter and just want to run a rewards campaign, there’s one way in which Fig is actually superior to Kickstarter. Let me explain.

Kickstarter, like most non-charitable crowdfunding sites, charges a 5% platform fee from what you raise. Factor in payment processing fees, which can come to about 3-5% of what you raise, and you could be paying 8-10% of what you raise in fees.

Fig, however, does things differently. Launch a rewards campaign with Fig and you won’t pay any platform fees. You will only have to pay credit card processing fees. These will come out to about 2.5% of what you raise. If you’re an independent game publisher looking to use rewards crowdfunding to get your project started, this factor alone gives Fig a leg up on the competition.

For Fig’s equity crowdfunding campaigns, the company states the following:

If and only if the campaign succeeds, a portion of Fig’s out-of-pocket legal and accounting transaction costs will be deducted from the investment proceeds (up to 5%).

7) Fig Can Publish Your Game As Well

Fig states the following regarding its publishing services:

Fig stands as a non-exclusive co-publisher of your game, so you can maintain control over the publishing of your game while receiving Fig’s support in distribution and marketing. Fig is open to exclusively publishing your game if that is your desire. Some developers have requested we exclusively publish their games.

Fig’s publishing services can be opted into — you are not required to use them to publish your game.

8) You Can Run A Private Funding Campaign Before You Go Public

Is your video game idea still in its embryonic stage? Is it unworthy of being seen by the general public at this point? You might want to consider running a private funding campaign before you run a public one.

Fig’s Backstage Pass Program lets you do exactly this. Through this program, Fig’s most hyper-attuned backers can evaluate your campaign away from the prying eyes of the public and give you valuable feedback, all while you start the fundraising process, getting a head-start on your public crowdfunding campaign.

Disclaimer

Here’s a disclaimer I’ve started attaching to everything I write related to equity crowdfunding:

Bear in mind that equity crowdfunding is a still-evolving field, with the full impact of the JOBS Act still being assessed. Equity crowdfunding is a more complex proposition than, say, rewards-based crowdfunding, as investing is much more substantially regulated. Consult an attorney if you have any legal questions regarding the process, SEC regulations, taxes, etc.

Final Thoughts

No form of popular entertainment inspires as much passionate devotion (among other things) as does the video game. For those looking to get in on the ground floor of the industry, crowdfunding is a way you can fund your passion projects while a) retaining control of your work, and b) not going into debt.

Fig’s particular brand of video game crowdfunding gives independent developers and game studios alike the ability to fund their work by monetizing the all-consuming devotion of video game fans. Just make sure you know the essentials before you embark on your crowdfunding journey.

The post 8 Facts You Should Know Before Crowdfunding A Video Game On Fig appeared first on Merchant Maverick.

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