Crowdfunding is generally the practice of funding a project or venture by raising money from a number of people, usually via the Internet. There are basically 4 key types of crowdfunding, namely:
Reward-based crowdfunding, also known as perks-based is one of the most common types of crowdfunding available these days. Under this type of crowdfunding, the investors usually not receive any financial return, instead they get a tangible item or service in return for their funds. The reward can be in the form of a product or service that the project owner is trying to launch. For borrowers, reward-based crowdfunding is perhaps the best option as they need not to repay the money. They just have to deliver the rewards or perks that they promised when the campaign is over.
As the name suggests, equity crowdfunding is the type of crowdfunding in which the investors invest a large sum of money in a company in exchange for a small piece of equity in the company. This type of crowdfunding is also known as crowdinvesting, investment crowdfunding, or crowd equity. It allows entrepreneurs to set investor caps, minimum pledge amounts, etc. They can even approve or deny investors who wish to view their business documents.
Donation-based crowdfunding is a form of crowdfunding in which the donors donate a small amount of money in exchange for gratitude and the feeling of supporting a cause they have trust in. The best thing about donation based crowdfunding is that it enables individuals to straightforwardly share their money with causes and projects that they feel strongly about and by this means empower others to create impact.
Crowdlending or lending based crowdfunding allow entrepreneurs to raise funds in the form of loans that they will pay back to the lenders over a pre-defined timeline with a set interest rate. These days, there are several crowdlending companies in the market bringing together investors and borrowers. Under this type of funding, investors lend money to individuals, companies or projects and they have the obligation to pay back the money with a fixed payment schedule and at a fixed interest rate. In order to enjoy smart savings, it is vital to choose a crowdlending platform that provides modern investment management and tailored advisory services.
Crowdfunding not only creates a funding opportunity for small businesses who may not have received the desired funding in the traditional manner, it is also an excellent outlet for more established companies.