Saturday, July 26, 2014

Use Crowdfunding To Get Back On Track with Your Finances



 Crowdfunding
The 2012 Jumpstart Our Business Startups Act, or JOBS Act, loosened securities regulations to encourage funding of small businesses and required the SEC to propose crowdfunding rules. The JOBS Act limits annual individual investments in crowd funded startups to 5% of an individual’s income or net worth - or $2,000 if the individual’s income or net worth is under $100,000. Business startups can raise up to $1 million through crowdfunding each year, must report to the SEC at least annually and maintain audited financial statements if they raise more than $500,000 in a year.

Crowdfunding involves funding a project or venture by raising small amounts of money from people online around the world or when people network and pool their money together, via the Internet, in order to support efforts initiated by persons or organizations.

There are 4 types of crowdfunding:

1.      Reward-based crowdfunding – used for motion picture promotion, free software development, inventions development, scientific research, and civic projects

2.      Equity-based crowdfunding - support efforts initiated by individuals or organizations in exchange for equity in the company, a good example is the TV show “Shark Tank”

3.      Donation-based crowdfunding - raise money for any reason including personal matters, such as healthcare costs, or social causes.

4.      Credit-based crowdfunding - peer-to-peer lending or crowd-lending, a company or individual lends money and receives interest for the loan


The most common type used for personal needs is donation-based crowdfunding. Crowdfunding was originally designed to fund start-up businesses but many now use it to pay for personal expenses such as:  weddings, student loan debt, unemployment, financial crisis, buying a home, college tuition, paying medical bills or anything you can think of. It is also used by people who have bad credit and cannot get traditional loans or people who have loans and cannot pay them back.

The top ten crowd funding websites are:  Gofundme, Kickstarter, Indiegogo, Causes, Giveforward, Crowdrise, Youcaring.com, Firstgiving, Fundly, and Fundrazr. Crowdfunding websites charge a fee usually a percentage of the money rose plus additional fees.  Crowdfunding fees for some of the most popular websites are:

1.      Kickstarter - 5% of funds raised, plus 3-5% transaction fees but you lose the funds if the goal isn’t met
2.      Indiegogo - on the all-or-nothing plan, 4% of the funds; flexible funding plan, 4% if you reach your goal, 9% if you do not reach your goal. Transaction fees are an additional 3%
3.      GoFundme – take 5% from each donation (the total donation) you receive. You can use either WePay or PayPal to process your payment - both charge fees ranging from 2.9+% to 3.5%.
4.      Fundrazr - 5% for completed or an incomplete campaign plus 2.2% +$.030 transaction fees

Here are 4 ways to use crowdfunding to pay a personal debt:

1.      Tell your story. Explain why you need the money, what you have already done on your own – what has worked and what didn’t work and how the money will be used.
2.      Set a Realistic Financial Goal. Set a practical fundraising goal that you can achieve in a reasonable time period.
3.      Develop an Elevator Pitch. Explain your cause in two to three sentences or within 60 seconds.
4.      Market. You will have to market your campaign to reach your fundraising goal. Tell everyone you know and invite them to visit your website. You will have to constantly update the campaign to give people a reason to keep visiting your website.
5.      Taxes. Money raised may be considered income and you may have to pay taxes on the amount raised. Treat the money as additional income or as you would business income and plan accordingly for taxes.
6.      Reward. Offer rewards or gifts for large donations to encourage greater participation.


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