If you're a new bakery business owner, you might be wondering if crowdfunding is an excellent strategy to promote your shop and generate more income. Crowdfunding is a way of raising money from the public through platforms like Kickstarter, Indiegogo, and Patreon. But how does it work exactly? Why is it preferred by small businesses that want to raise capital?

In this article, we'll look at how crowdfunding works and discuss why it can be advantageous for your growing bakery.

What is crowdfunding?

Crowdfunding is when an individual or a company finds ways to raise capital from a large group of individuals. This eliminates the need to apply for traditional loans, which may be hard to get if you’re new in the market.

When you receive enough cash from the public, it becomes easier to get off the ground, launch new products, open up a new shop, or purchase new equipment. In most crowdfunding initiatives, you have to set a time frame for raising money. You will also disclose your financial goals to the public for transparency.

How does crowdfunding work?

Through crowdfunding, people who want to support your bakery will pledge money towards it. In return, you will send them some goods from your shop. The amount of money that you raise through crowdfunding depends on the number of people and the amount they pledged.

To launch a successful crowdfunding campaign, it's essential to have a clear and concise pitch. You'll need to explain what your bakery is about and why you need the funds. You'll also need to create an enticing rewards program, which will encourage people to support your campaign.

The different kinds of crowdfunding

Crowdfunding can be a great way to get your bakery business up and running. But before you do that, you should know the different kinds of crowdfunding campaigns.

Donation-based funding

Donation-based crowdfunding entails raising funds from individuals to support your business with no financial returns for contributors. This form of crowdfunding is perfect for small businesses and startups, as it doesn't require any collateral or investment.

This type of crowdfunding tests the feasibility of your bakery business before launching it on a grander scale.

Reward-based funding

With reward-based funding, contributors receive tokens, products or services in exchange for their donations. Also known as seed funding, this type of crowdfunding is intended for small business owners who are not seeking huge capital but do have enough funds to provide “rewards” to their supporters once the product or project is launched.

Equity funding

Are you seeking more considerable capital? You might want to try equity-based crowdfunding. Equity funding allows backers to invest in the business itself and potentially make money if it does well. This primarily helps bakery owners who need financing but are not yet qualified to apply for small business loans.

Debt-based funding

Debt-based crowdfunding or crowd lending pertains to lenders who use crowdfunding platforms to provide financing to startups or new business owners. It is a proven alternative to traditional loans that often require collateral to get approved.

What’s great about debt crowdfunding is that investors won’t have to take ownership of your business. Investors would also provide incentives to communities, encouraging them to get involved in supporting your projects.

Pros and cons of crowdfunding your bakery

Crowdfunding has become increasingly popular with the birth of new businesses during the pandemic. Many aspiring entrepreneurs who want to launch their ideas or promote their campaigns turn to crowdfunding platforms to get support from the public. It has also become a proven way to seek capital without rigorous bank processes and strict requirements.

Here’s how crowdfunding will benefit you.

Why should you do crowdfunding for your bakery?

  1. You can minimize your financial risks. Crowdfunding allows you to test the waters and see if there’s demand for your product. For example, if you’re planning to launch a new line of keto cupcakes in your area, you might want to crowdfund it and see if anyone likes it before you spend money on ingredients and equipment.

  2. You can validate your business idea. If you're planning to launch new equipment that will help simplify baking processes, crowdfunding can help you validate if there is a market for it. You can also get feedback and suggestions from your supporters through your preferred crowdfunding platform.

  3. You can create a solid fanbase for your business. Platforms like Indiegogo and Kickstarter are some of the best places to find people already supporting businesses like yours. If you want to find supporters–or build one yourself–crowdfunding is an excellent way to start it.

  4. It’s a great alternative to seeking bank loans. Not many small businesses are qualified to get a loan from traditional lenders like banks and credit unions. Usually, you have to be in business for at least two years to establish your credit history. If you have been denied a loan in the past, you can try crowdfunding to seek capital from supporters.

Final thoughts

Crowdfunding has become a popular way to raise money for all sorts of businesses, and there’s no reason why it wouldn’t work for your bakery too.

If you are thinking about launching a crowdfunding campaign for your bakery, be sure to do your research first. Know and understand the rules and requirements for each crowdfunding platform before you sign up. Also, consider the fees that come with crowdfunding campaigns so you may plan your budget ahead.

About the Author - Matthew Gillman is a business financing expert with more than a decade of experience in commercial lending. He is the founder and CEO of SMB Compass, a specialty finance company providing education and financing options for business owners.