How to Use GoFundMe for Your Business
When banks and other lenders turn you down, you might go to family and friends to ask for help funding your business. Your closest supporters want to see you succeed, and they might be willing to give you money to help you.
If the thought of asking friends or family for money doesn’t appeal to you, consider setting up an account on a crowdfunding website, such as Kickstarter, Indiegogo or GoFundMe. They are all legitimate platforms that can enable you to get monetary contributions for your business.
Read on to find out more about GoFundMe, a crowdfunding website with a focus on charitable donations. Learn how to use the site to raise money for your business and determine if crowdfunding is the right solution for your financial needs.
What is GoFundMe?
GoFundMe is an online fundraising platform for individuals and groups. You create a campaign to tell your story and set a fundraising goal, then share your campaign on social media and accept donations through the platform. Business owners can set up a campaign to raise money to cover certain expenses such as renovations, product expansions or new equipment.
GoFundMe is similar to other crowdfunding platforms, such as Kickstarter and Indiegogo, which allow members of the general public to give money to small businesses in exchange for a product or equity in the company. But GoFundMe facilitates charitable donations, enabling business owners to accept money without offering anything in return.
The practice of crowdfunding involves soliciting financial contributions from a large group of people, and it can be a viable funding option for small business owners. Like a traditional small business loan, crowdfunding helps you obtain money to cover your business needs or get your business off the ground, said Sherwood Neiss, principal at Crowdfund Capital Advisors. And unlike you would with a traditional loan, you don’t have to pay back the funds.
Some crowdfunding platforms might require you to give people a stake in your company or access to products and services, but GoFundMe simply helps you collect donations. Although GoFundMe donors don’t receive equity or reimbursement for their contributions, the platform guarantees a refund to all donors if the recipient misuses funds or runs a deceptive campaign.
How do businesses use crowdfunding?
Small business owners turn to crowdfunding for a variety of reasons, said Scott McIntyre, president of the nonprofit trade group Crowdfunding Professional Association and managing director of COventures.us.sn
Business owners might explore crowdfunding if they don’t qualify for traditional business financing, McIntyre said. Startups and new business owners often can’t qualify for conventional loans because they lack experience or substantial collateral, and crowdfunding could fill that gap, he said.
Crowdfunding is also a way to legitimize donations and investments from family and friends, McIntyre said. Their support through a crowdfunding campaign could build credibility and build your business’ awareness level.
“It’s not all about financing,” he said. “One of the biggest benefits is the word-of-mouth marketing you get from supporters.”
You could use crowdfunding to test how customers receive your new product or service. If no one backs your new project, you might want to go back to the drawing board, McIntyre said.
Crowdfunding platforms typically collect a fee to use the service. GoFundMe charges a 2.9% processing fee plus 30 cents per donation, but does not charge an overall platform fee. Other than that, you keep all donations you receive, even if you don’t reach your goal. But if you do reach your goal, GoFundMe allows you to continue raising money for as long as you’d like.
Under regulations from the U.S. Securities and Exchange Commission, businesses can raise a maximum of $1.07 million through crowdfunding in a 12-month period. The SEC also limits the amount individuals can invest via crowdfunding platforms.
Crowdfunding vs. traditional business loans
The level of communication that crowdfunding requires is its biggest differentiator from traditional loans, Neiss said. When you take out a traditional loan, the lender rarely checks in later to see how your business is doing, he said. As long as you make your monthly payments, the lender typically has no interest in your daily operations.
Backers are typically more involved with crowdfunding, though. Crowdfunding demands more accountability than traditional business financing, Neiss said. “When you take money from the crowd, you can be sure the crowd is going to want to know how you’re doing as a business,” he said.
Compared with traditional financing, crowdfunding helps business owners get the funds they need in a shorter amount of time. For example, GoFundMe lets you collect money as soon as your campaign starts receiving donations. You can make a withdrawal anytime and see the money in your bank account in two to five days.
Pros of crowdfunding
- You can obtain capital without significant business experience or collateral.
- The funding process is faster than it is with traditional financing.
- You can elicit direct feedback from your backers.
- Word-of-mouth marketing can benefit your business.
Cons of crowdfunding
- It might be difficult to stand out among other crowdfunding campaigns.
- If you don’t fulfill the promise of your campaign, you must inform your backers that you failed.
- You might have to pay taxes on money you receive.
|Crowdfunding vs. business loan|
|No minimum time in business required||Minimum time in business generally required|
|No underwriting process to slow time to funding||Time to funding might take longer because of application or underwriting processes|
|Company equity or products/services sometimes used to pay off backers||Lender sets a regular repayment schedule|
Getting started with GoFundMe
- Make sure your business is eligible. GoFundMe prohibits campaigns connected to any activity or product that violates laws or government regulations. Additionally, GoFundMe does not allow campaigns related to weapons, such as knives or firearms, gambling or gaming or offensive or graphic content. GoFundMe also reserves the right to deem any campaign unacceptable.
- Create your account. You can create a GoFundMe account online from your phone or computer. Once you sign up, you can create a custom campaign and personalize your link to make it easier for supporters to locate your landing page.
- Devise a compelling campaign. Use bright, clear photos and videos to make a strong first impression. If possible, feature photos of the people involved in your business. A catchy and descriptive campaign title will also draw people to your page.
- Set a funding goal. Set a goal that covers any costs you take on to run the campaign, including GoFundMe’s payment processing fee. Your fundraising goal should be specific and realistic relating to what your network of family, colleagues and customers can contribute. If you develop a sense of urgency around your goal, your network will likely feel more obligated to contribute. You can set a deadline on your campaign page.
- Promote your campaign. Sharing your campaign with your Facebook network is the first step, as well as sending it to family and friends for them to share. You can reach out to others through email, text and other social media platforms, and you should include a personal note each time you share a link to your campaign. If you build a community around your campaign, you’re more likely to see a consistent volume of donations.
- Keep your campaign updated regarding your progress. Posting frequent updates helps you continue engaging with your donors. You might personally thank those who have donated or shared your story and let them know how close you are to reaching your goal. Each time you reach out to supporters, include a call to action and request that they share your campaign with their networks.
- Collect your funds. To receive funds, you must provide an acceptable form of ID, such as a valid passport or driver’s license. You also must provide your banking information, and GoFundMe will need to verify your account. After you request a withdrawal from your GoFundMe donations, you could see the money in your bank account in two to five days.
Is crowdfunding right for my business?
Running a crowdfunding campaign “is not a cakewalk,” Neiss said, and you need a fully dedicated management team. The better your campaign, the more money you could raise, according to Neiss. “A very small amount of money is going to poorly constructed campaigns,” he said.
In addition to having the time to focus on a campaign, you should have social capital, McIntyre said. If you have a large online following or a dedicated customer base, you might have a better shot at reaching your fundraising goal.
What to look for in a crowdfunding platform
What you can keep. Before you start accepting investments or donations, make sure you understand the platform’s policy if you do not meet your fundraising goal, McIntyre said. Although GoFundMe lets you keep any money you raise, other platforms might require you to meet your goal to receive money.
Who typically uses the platform. Some crowdfunding platforms are known for featuring certain types of campaigns. For example, Indiegogo hosts campaigns for artists, musicians and filmmakers, and Kickstarter features startups and tech businesses, McIntyre said. GoFundMe typically hosts charitable campaigns for nonprofits or businesses that need a helping hand.
Your business should align with the public perception of the crowdfunding platform you plan to use, Neiss said. “You have to look at the different platforms and see who their target customer is, and you have to make sure you fit within that,” he said.
What your campaign needs
Your business timeline.
Your campaign landing page should describe the origin of your business, McIntyre said. Backers want to know where your business idea came from and how you executed your plan.
An eye-catching video.
One of the most important components of your campaign is a three-minute video showcasing your company and your plans for the funds you raise, Neiss said. Including customer testimonials or music in the background better engages viewers.
Although a video can help your campaign, it might cause more harm than good if it’s poorly made. A low-quality video could raise questions about your dedication to the business, Neiss said.
A compelling story.
Craft a concise, compelling story through your video and written campaign description to motivate people to back your company, McIntyre said. Once they feel a connection to your company, people will be more inclined to share your campaign, which will attract attention to your business.
“If you are diligent in telling that story, the message can reach far beyond the subscribers of a particular crowdfunding platform,” McIntyre said.
Many people choose which campaigns to support based on emotional appeal, McIntyre said. When it comes to supporting business campaigns, people often feel good about helping someone pursue his or her entrepreneurial ambition. Some people might have had similar aspirations but couldn’t find funding, and now they have a chance to help someone else chase their dreams.
“Supporters of crowdfunding campaigns often choose to contribute largely based on emotion,” McIntyre said. “Crowdfunding offers a way to support others’ dreams in ways perhaps they never enjoyed.”