Small Businesses Still Generally Uninformed About Crowdfunding

Crowdfunding still has a lot of public relations work to do on Main Street. Two surveys came out in the last year that show most small business owners are either unaware that crowdfunding exists at all or they do not believe it will help them. The first survey, completed in May by Dun and Bradstreet Credibility Corporation with the help of Pepperdine University, showed that only 3% of small businesses believed the JOBS Act increased their chances of raising money with crowdfunding. A second survey completed four months later by Experian showed that two-thirds of small businesses had not even heard of crowdfunding.

At a time when raising capital for small business continues to struggle, it is surprising that so few small business owners are either not aware or don’t trust one of the biggest small business ideas since the Internet. This is hardly a hopeless situation, of course, as crowdfunding gets more and more press every day, but it definitely shows that the industry has plenty of work to do.

Where Do Small Businesses Get Funding Now?

According to the Dun and Bradstreet survey, 71% of respondents got capital from friends and family. 62% percent used personal credit cards and 59% used business credit cards. 45% said they got loans from banks.

More Crowdfunding Means More Jobs

The need to get the word out about crowdfunding as a new option for raising capital is pressing. Small businesses generate about 65% percent of new jobs in the United States, according to the Small Business Administration. Many sources have tied the slow grow of jobs to small businesses’ reduced access to credit. Small businesses will hire, the experts claim, only when they have more access to credit.

Once you understand the link between lending and hiring, it is easy to see why the Obama administration is so eager to get the JOBS Act up and running. When more small businesses get the funding they need, those businesses can in turn hire some of the unemployed who need jobs so badly. Crowdfunding is a job growth mechanism.

Taking a Closer Look at the Surveys

There is one very interesting factoid from the Dun and Bradstreet survey: 53% of small businesses said they would not be taking advantage of crowdfunding. 45% weren’t sure if they would. That leaves only 2% – one in fifty – saying that they expect to use crowdfunding. The survey drew from a pool of 6,000 respondents, which means about 120 had plans for crowdfunding.

One reason that the crowdfunding option seemed so unlikely to businesses people was that the SEC rules are still being written. Most small business financing will stick to traditional methods until there is more clarity about how crowdfunding will work. Also, many small business people may think that crowdfunding is only for startups, not for existing businesses.

“Never Heard of it”

The unsure 45% from the Dun and Bradstreet survey makes a lot of sense when you compare it to a similar survey Experian did four months later. Experian found that two-thirds of small business survey respondents had never even heard of crowdfunding. This survey’s results are not as precise as the Dun and Bradstreet survey because Experian only contacted 300 business owners, but the two-thirds statistic still shows a massive gap between what small businesses owners should know about crowdfunding and what they do know. They are missing out on raising up to $1 million per year under the new laws. That’s a dramatically better deal than using a credit card with a 15% interest rate.

Leave a Comment