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Rewards-Based Crowdfunding: What It Is, When It Works

December 6, 2017
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Crowdfunding is an alternative to traditional small-business financing that provides the means to transform a promising idea into profitable reality — without having to pay back a penny. Rewards-based crowdfunding is the most popular type of crowdfunding.

What is rewards-based crowdfunding?

Rewards-based, or seed, crowdfunding is a type of small-business financing in which entrepreneurs solicit financial donations from individuals in return for a product or service. There are about 19 times as many rewards campaigns as there are for its closely related counterpart, equity-based crowdfunding.

How does it work?

Business owners describe their project or business idea and fundraising goal on a crowdfunding platform. In return for donations, businesses provide rewards. For example, a jewelry designer might reward everyone who contributes $100 with an original handmade bracelet, or an inventor of solar-powered lawn mowers might give a mower to contributors at the $1,000 level.

Rewards don’t have to be substantial; some businesses offer a simple handwritten thank-you note.

Who is it good for?

This type of financing is geared toward startups, particularly in creative fields, that don’t qualify for traditional small-business loans but have compelling projects or want to test a market. Small businesses with a complex product or service might want to explore traditional funding options; it might be hard to explain the value of your company in layman’s terms to a crowdfunding audience.

Who can contribute?

Anyone — family, friends, customers, business partners — can contribute to a rewards crowdfunding campaign. Individual donations are often small, so business owners need to persuade as many people as possible to pitch in. Often, the campaign is shared on social media with the hope that the business owner’s followers will, in turn, share the campaign with their networks.

Is it free?

Platforms typically charge a percentage that can be as low as 5% to as high as 13% of funds raised, and may charge an additional processing fee.

Rewards-based crowdfunding pros and cons

Rewards crowdfunding allows small businesses to get new ideas off the ground without the burden of repaying a loan. Before jumping in, consider the pros and cons:

Pros

  • It’s one of the cheapest ways to raise capital
  • No collateral, credit check or previous business experience is needed
  • The process is simple and doesn’t require professional financial or legal help
  • You retain all equity and control in your company
  • Exposure gained on the platform can help establish a customer base and brand awareness

Cons

  • Since you’re relying on individual donations, rewards crowdfunding isn’t the best option for businesses seeking large amounts of funding
  • If you don’t reach your goal, you may have to forfeit any amount raised
  • Pitching your idea online exposes it to potential donors — and to competitors. To avoid having your idea stolen, protect yourself with patents.

How to get started

To start a reward crowdfunding campaign, apply on a crowdfunding platform. The most popular platforms are:

You’ll need a convincing pitch that appeals to as many people as possible, as well as attractive rewards at all donation levels. An entertaining, informative video can help sell your idea. For the broadest exposure, reach out to family, friends and associates via email and social media.

Not what you’re looking for?

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

We recommend the following ways to finance your business:

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Business credit card
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  • A microloan is a good option if you have limited revenue and history.

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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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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.

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


Compare lenders with NerdWallet's loan tool

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

  • If you have growing revenue, you can tap credit as needed and repay quickly.


Compare credit cards at NerdWallet

Microloan
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  • A microloan is a good option if you have limited revenue and history.

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Term loan
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  • With a year or more 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.

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


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.

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


Compare lenders with NerdWallet's loan tool

Business credit card
SMB_Business_CC_t



  • 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.


Compare credit cards at NerdWallet

Microloan
SMB_Microloan_t



  • 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.

  • Microloans are typically less than $50,000.


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 or more 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, 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

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.

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


Compare lenders with NerdWallet's loan tool

Business credit card
SMB_Business_CC_t



  • 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.


Compare credit cards at NerdWallet

Microloan
SMB_Microloan_t



  • 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.

  • Microloans are typically less than $50,000.


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, 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

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.

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


Compare lenders with NerdWallet's loan tool

Business credit card
SMB_Business_CC_t



  • 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.


Compare credit cards at NerdWallet

Microloan
SMB_Microloan_t



  • 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.

  • Microloans are typically less than $50,000.


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, a term loan can provide a lump sum you can repay over a set period of time.


Compare lenders with NerdWallet's loan tool

Microloan
SMB_Microloan_t



  • 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.

  • Microloans are typically less than $50,000.


Compare microlenders at NerdWallet

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.

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


Compare lenders with NerdWallet's loan tool

Business credit card
SMB_Business_CC_t



  • 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.


Compare credit cards 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, 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, 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.

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


Compare lenders with NerdWallet's loan tool

Business credit card
SMB_Business_CC_t



  • 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.


Compare credit cards at NerdWallet

Microloan
SMB_Microloan_t



  • 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.

  • Microloans are typically less than $50,000.


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, 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.

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


Compare lenders with NerdWallet's loan tool

Business credit card
SMB_Business_CC_t



  • 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.


Compare credit cards at NerdWallet

Microloan
SMB_Microloan_t



  • 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.

  • Microloans are typically less than $50,000.


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

Funding option

Why we recommend

Find a lender

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 credit score should be at least 579 to qualify.

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


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

Funding option

Why we recommend

Find a lender

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

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

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

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

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 of 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

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, 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

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

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

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

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, 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
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

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.

Updated Dec. 6, 2017.

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