At its most basic level, crowdfunding is using an online platform to collect small amounts of money from many individuals in order to raise the amount required. Crowdfunding can take the form of donation, reward, or equity-based models. Donation crowdfunding is often used by charities or nonprofits to raise money. An example of a common online platform is GoFundMe. People who contribute money in a rewards-based crowdfunding model receive a reward, usually tied to their level of giving, and in some cases where the money is used for raising manufacturing costs, the reward is a "presale" of the product. The online platform Kickstarter is one example that uses a rewards-based model. Equity-based crowdfunding, in which business owners can receive money from investors in exchange for part ownership, was made possible by the 2016 JOBS Act. Business are legally able to issue stocks in their company in exchange for financing, which allows investors to profit from their contribution. The Financial Industry Regulatory Authority (FINRA) has a list of crowdfunding portals External registered with the Securities and Exchange Commission and are FINRA members. Peer-to-peer (or peer-to-business) lending is also considered a type of crowdfunding, in which investors give money that need to be repaid with interest. More information on non-bank and peer-to-peer lending can be found on the loans page in this guide.
The following external websites provide links to resources on crowdfunding for small businesses.