Equity Crowdfunding: How It Can Help Your Startup

Pitching your business to venture capitalists may not be in the cards for first-time entrepreneurs or small shops, but crowdfunding can help you find both accredited investors and everyday consumers willing to back your company.

Equity crowdfunding means investors provide financing in return for a stake in your business. It differs from rewards-based crowdfunding, which gives backers rewards (like products or services) in return for financial donations.

What is equity crowdfunding?

Equity crowdfunding is unlike other types of financing because it has no debt component. Rather than making payments toward a business loan, you give shares of your company to investors.

How does it work?

Equity crowdfunding takes place on a crowdfunding platform. You choose a platform, then create an online profile that includes your pitch and detailed business information, such as financial statements and business history, that helps investors evaluate growth potential. Ultimately, investors want to determine good odds that company shares will appreciate over time.

Companies can legally raise up to $1 million in a 12-month period through equity crowdfunding. If you need a larger investment, you can raise funds in increments over several years.

Who is it good for?

Equity crowdfunding is an option for businesses with strong growth potential. It’s for entrepreneurs who want to take their small business to the next level by expanding markets or offering more products.

Who can invest?

Funding comes from investors via secure online platforms. Investors can be accredited (meaning they meet asset and income requirements) or everyday consumers, including family, friends and business partners bullish on your company’s success. However, accredited investors tend to stick with high-growth companies such as tech startups, so your average mom-and-pop small business may have more luck attracting relatives or acquaintances with rewards-based crowdfunding.

How much does it cost?

Crowdfunding platforms charge a percentage of funds raised for their services; some charge additional payment processing fees. You might also need to pay for services, such as accounting, to get your paperwork in order prior to submitting your pitch.

Equity crowdfunding pros and cons

Offering shares of your company is a novel alternative to taking out a traditional business loan. As with any type of funding, it has its pros and cons:

Pros

  • No credit check or collateral required
  • Funding sourced from multiple investors increases the potential to raise larger sums of cash
  • The platform usually pools funds into a single investment, streamlining accounting and financial reporting
  • Offering equity eliminates the need to budget for loan repayments
  • A successful crowdfunding campaign drums up buzz about your business and connects you with potential customers

Cons

  • Giving away pieces of your business could prove problematic if investors decide to assert their influence on company operations
  • Your pitch must include detailed information about your operations, including audited financial statements, if more than $500,000 is being raised
  • After a deal closes, companies must comply with state and federal security filings. They also have a fiduciary duty to report to shareholders about the health of the company.

How to get started

To be considered for equity crowdfunding, apply on a crowdfunding platform. Here are a few that offer equity crowdfunding:

Be prepared to attract investors with a persuasive presentation that includes marketing and project plans, financial projections and a captivating video that leaves no doubt your idea is unique and will pay off handsomely.

Not what you’re looking for?

There are countless ways to fund your small business. Take this quiz to determine which is right for you.

 Updated Dec. 11, 2017

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  • You can turn your unpaid customer invoices or receivables into upfront cash.

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Invoice Factoring
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  • You can turn your unpaid customer invoices or receivables into upfront cash.

  • Invoice factoring is a good option to manage cash-flow gaps.


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  • A personal loan can be a source for newer businesses because approval is typically based on your personal credit score.

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  • Since your business is growing and you have average or better credit, a microloan is a good option if you're looking for reasonable rates.

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  • With growing revenue, a line of credit offers flexible spending and higher credit limits than business credit cards.


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  • A personal loan can be a source for newer businesses because approval is typically based on your personal credit score.

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Business credit card
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  • A business credit card provides flexible access to cash.

  • It's a good option for short-term expenses as you can tap credit as needed and repay quickly.


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Microloan
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  • Since your business is growing and you have average or better credit, a microloan is a good option if you're looking for reasonable rates.

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  • A personal loan can be a source for newer businesses because approval is typically based on your personal credit score.

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Business credit card
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  • A business credit card provides flexible access to cash.

  • It's a good option for short-term expenses as you can tap credit as needed and repay quickly.


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Microloan
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  • Since your business is still young and you have average or better credit, a microloan is a good option if you're looking for reasonable rates.

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We recommend the following ways to finance your business:

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Find a lender

Personal loan
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  • A personal loan can be a source for newer businesses because approval is typically based on your personal credit score. Your rates may be higher if you have poor credit.

  • NerdWallet recommends taking a maximum of $35,000 to fund your business.


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Microloan
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  • Since your business is growing, a microloan is a good option if you're looking for reasonable rates.

  • Some microlenders work with entrepreneurs who are building their personal credit and their business.


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We recommend the following ways to finance your business:

Funding option

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Find a lender

Invoice Factoring
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  • You can turn your unpaid customer invoices or receivables into upfront cash. Your personal credit is not a major factor.

  • Invoice factoring is a good option to manage cash-flow gaps.


Compare lenders with NerdWallet's loan tool

Personal loan
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  • A personal loan can be a source for newer businesses because approval is typically based on your personal credit score. Your rates may be higher if you have poor credit.

  • NerdWallet recommends taking a maximum of $35,000 to fund your business.


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Microloan
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  • Since your business is growing, a microloan is a good option if you're looking for reasonable rates.

  • Some microlenders work with entrepreneurs who are building their personal credit and their business.


Compare microlenders at NerdWallet
We recommend the following ways to finance your business:

Funding option

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Find a lender

Term loan
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  • With a year in business and growing revenue, a term loan can provide a lump sum you can repay over a set period of time.


Compare lenders with NerdWallet's loan tool

Invoice Factoring
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  • You can turn your unpaid customer invoices or receivables into upfront cash. Your personal credit is not a major factor.

  • Invoice factoring is a good option to manage cash-flow gaps.


Compare lenders with NerdWallet's loan tool

Personal loan
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  • A personal loan can be a source for newer businesses because approval is typically based on your personal credit score. Your rates may be higher if you have poor credit.

  • NerdWallet recommends taking a maximum of $35,000 to fund your business.


Compare lenders with NerdWallet's loan tool

Microloan
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  • Since your business is growing, a microloan is a good option if you're looking for reasonable rates.

  • Some microlenders work with entrepreneurs who are building their personal credit and their business.


Compare microlenders at NerdWallet
We recommend the following ways to finance your business:

Funding option

Why we recommend

Find a lender

Term loan
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  • With a year in business and growing revenue, a term loan can provide a lump sum you can repay over a set period of time.


Compare lenders with NerdWallet's loan tool

Line of Credit
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  • With growing revenue and a year of business, a line of credit offers flexible spending and higher credit limits than business credit cards.


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Invoice Factoring
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  • You can turn your unpaid customer invoices or receivables into upfront cash. Your personal credit is not a major factor.

  • Invoice factoring is a good option to manage cash-flow gaps.


Compare lenders with NerdWallet's loan tool

Personal loan
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  • A personal loan can be a source for newer businesses because approval is typically based on your personal credit score. Your rates may be higher if you have poor credit.

  • NerdWallet recommends taking a maximum of $35,000 to fund your business.


Compare lenders with NerdWallet's loan tool

Microloan
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  • Since your business is growing, a microloan is a good option if you're looking for reasonable rates.

  • Some microlenders work with entrepreneurs who are building their personal credit and their business.


Compare microlenders at NerdWallet
We recommend the following ways to finance your business:

Funding option

Why we recommend

Find a lender

Line of Credit
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  • With growing revenue, a line of credit offers flexible spending and higher credit limits than business credit cards.


Compare lenders with NerdWallet's loan tool

Invoice Factoring
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  • You can turn your unpaid customer invoices or receivables into upfront cash. Your personal credit is not a major factor.

  • Invoice factoring is a good option to manage cash-flow gaps.


Compare lenders with NerdWallet's loan tool

Personal loan
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  • A personal loan can be a source for newer businesses because approval is typically based on your personal credit score. Your rates may be higher if you have poor credit.

  • NerdWallet recommends taking a maximum of $35,000 to fund your business.


Compare lenders with NerdWallet's loan tool

Microloan
SMB_Microloan_t



  • Since your business is growing, a microloan is a good option if you're looking for reasonable rates.

  • Some microlenders work with entrepreneurs who are building their personal credit and their business.


Compare microlenders at NerdWallet
We recommend the following ways to finance your business:

Funding option

Why we recommend

Find a lender

Term loan
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  • With a year in business and growing revenue, a term loan can provide a lump sum you can repay over a set period of time.


Compare lenders with NerdWallet's loan tool

Personal loan
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  • A personal loan can be a source for newer businesses because approval is typically based on your personal credit score. Your rates may be higher if you have poor credit.

  • NerdWallet recommends taking a maximum of $35,000 to fund your business.


Compare lenders with NerdWallet's loan tool

Microloan
SMB_Microloan_t



  • Since your business is growing, a microloan is a good option if you're looking for reasonable rates.

  • Some microlenders work with entrepreneurs who are building their personal credit and their business.


Compare microlenders at NerdWallet
We recommend the following ways to finance your business:

Funding option

Why we recommend

Find a lender

Term loan
SMB_Term_Loan_t



  • With a year in business and growing revenue, a term loan can provide a lump sum you can repay over a set period of time.


Compare lenders with NerdWallet's loan tool

Line of Credit
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  • With growing revenue, a line of credit offers flexible spending and higher credit limits than business credit cards.


Compare lenders with NerdWallet's loan tool

Personal loan
SMB_Personal_Loans_t



  • A personal loan can be a source for newer businesses because approval is typically based on your personal credit score. Your rates may be higher if you have poor credit.

  • NerdWallet recommends taking a maximum of $35,000 to fund your business.


Compare lenders with NerdWallet's loan tool

Microloan
SMB_Microloan_t



  • Since your business is growing, a microloan is a good option if you're looking for reasonable rates.

  • Some microlenders work with entrepreneurs who are building their personal credit and their business.


Compare microlenders at NerdWallet
We recommend the following ways to finance your business:

Funding option

Why we recommend

Find a lender

Line of Credit
SMB_Line_of_Credit_t



  • With growing revenue and a year in business, a line of credit offers flexible spending and higher credit limits than business credit cards.


Compare lenders with NerdWallet's loan tool

Personal loan
SMB_Personal_Loans_t



  • A personal loan can be a source for newer businesses because approval is typically based on your personal credit score. Your rates may be higher if you have poor credit.

  • NerdWallet recommends taking a maximum of $35,000 to fund your business.


Compare lenders with NerdWallet's loan tool

Microloan
SMB_Microloan_t



  • Since your business is growing, a microloan is a good option if you're looking for reasonable rates.

  • Some microlenders work with entrepreneurs who are building their personal credit and their business.


Compare microlenders at NerdWallet
We recommend the following ways to finance your business:

Funding option

Why we recommend

Find a lender

Invoice Factoring
SMB_Invoice_Factoring_t



  • You can turn your unpaid customer invoices or receivables into upfront cash. Your personal credit is not a major factor.

  • Invoice factoring is a good option to manage cash-flow gaps.


Compare lenders with NerdWallet's loan tool
We recommend the following ways to finance your business:

Funding option

Why we recommend

Find a lender

Term loan
SMB_Term_Loan_t



  • With a year in business and growing revenue, a term loan can provide a lump sum you can repay over a set period of time.


Compare lenders with NerdWallet's loan tool

Invoice Factoring
SMB_Invoice_Factoring_t



  • You can turn your unpaid customer invoices or receivables into upfront cash. Your personal credit is not a major factor.

  • Invoice factoring is a good option to manage cash-flow gaps.


Compare lenders with NerdWallet's loan tool
We recommend the following ways to finance your business:

Funding option

Why we recommend

Find a lender

Term loan
SMB_Term_Loan_t



  • With a year in business and growing revenue, a term loan can provide a lump sum you can repay over a set period of time.


Compare lenders with NerdWallet's loan tool

Line of Credit
SMB_Line_of_Credit_t



  • With growing revenue and a year in business, a line of credit offers flexible spending and higher credit limits than business credit cards.


Compare lenders with NerdWallet's loan tool

Invoice Factoring
SMB_Invoice_Factoring_t



  • You can turn your unpaid customer invoices or receivables into upfront cash. Your personal credit is not a major factor.

  • Invoice factoring is a good option to manage cash-flow gaps.


Compare lenders with NerdWallet's loan tool
We recommend the following ways to finance your business:

Funding option

Why we recommend

Find a lender

SBA Loan
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  • As an established business with growing revenue, an SBA loan is a good option if you want low rates.

  • Approval and funding can take longer than other financing sources.


Compare lenders with NerdWallet's loan tool

Term loan
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  • With two years in business and growing revenue, a term loan can offer competitive rates.

  • A term loan is an attractive choice if you want a lump sum paid over a set period of time.


Compare lenders with NerdWallet's loan tool

Line of Credit
SMB_Line_of_Credit_t



  • With growing revenue and two years in business, a line of credit offers flexible spending and higher credit limits than business credit cards.


Compare lenders with NerdWallet's loan tool

Invoice Factoring
SMB_Invoice_Factoring_t



  • You can turn your unpaid customer invoices or receivables into upfront cash.

  • Invoice factoring is a good option to manage cash-flow gaps.


Compare lenders with NerdWallet's loan tool
We recommend the following ways to finance your business:

Funding option

Why we recommend

Find a lender

Line of Credit
SMB_Line_of_Credit_t



  • With growing revenue, a line of credit offers flexible spending and higher credit limits than business credit cards.


Compare lenders with NerdWallet's loan tool

Invoice Factoring
SMB_Invoice_Factoring_t



  • You can turn your unpaid customer invoices or receivables into upfront cash.

  • Your personal credit score is not a major factor.


Compare lenders with NerdWallet's loan tool
We recommend the following ways to finance your business:

Funding option

Why we recommend

Find a lender

Term loan
SMB_Term_Loan_t



  • A term loan is an attractive choice if you want a lump sum paid over a set period of time.


Compare lenders with NerdWallet's loan tool
We recommend the following ways to finance your business:

Funding option

Why we recommend

Find a lender

Term loan
SMB_Term_Loan_t



  • Since most lenders want at least a year in business, you should wait until you reach that milestone to find eligible term loan options.


Compare lenders with NerdWallet's loan tool

Line of Credit
SMB_Line_of_Credit_t



  • With growing revenue, a line of credit offers flexible spending and higher credit limits than business credit cards.

  • We recommend you've been in business for a year to compare line of credit options.


Compare lenders with NerdWallet's loan tool
We recommend the following ways to finance your business:

Funding option

Why we recommend

Find a lender

SBA Loan
SMB_SBA_Loan_t



  • As an established business with growing revenue, an SBA loan is a good option if you want low rates.

  • Approval and funding can take longer than other financing sources.


Compare lenders with NerdWallet's loan tool

Term loan
SMB_Term_Loan_t



  • With two years in business and growing revenue, a term loan can offer competitive rates.

  • A term loan is an attractive choice if you want a lump sum paid over a set period of time.


Compare lenders with NerdWallet's loan tool

Line of Credit
SMB_Line_of_Credit_t



  • With growing revenue and two years in business, a line of credit offers flexible spending and higher credit limits than business credit cards.


Compare lenders with NerdWallet's loan tool
We recommend the following ways to finance your business:

Funding option

Why we recommend

Find a lender

Line of Credit
SMB_Line_of_Credit_t



  • With growing revenue, a line of credit offers flexible spending and higher credit limits than business credit cards.


Compare lenders with NerdWallet's loan tool
Based on your scenario, we don't recommend any financing products for that loan amount. You may be able to find financing for loan amounts less than $50,000.

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