Crowdfunding refers to a fundraising strategy that aims to raise funds from the general public for a business or personal project. Crowdfunding usually conducted via a website and while various models currently exist, only a few models are regulated by the FFMA.
Non-Regulated Crowdfunding includes both the donation and reward models. The Donation Model simply is an open forum asking people to donate money to any cause under the sun. The Reward Model allows people do donate and receive prizes like TVs, vacations and so forth.
Regulated Crowdfunding includes loan and investment models. The Loan Model allows people to lend money and get back interest on their loan, while the capital is paid off over time. The Investment Model allows for people to invest in a business and receive shares and other benefits in return.
Benefits in Crowdfunding
Because crowdfunding is conducted via the internet and utilizes social networking it is very tempting and seemingly easy for people to raise large amounts of money; in addition, due to the peer-pressure affect many people might donate or pay to join these types of campaigns.
Crowdfunding is also a way for business and individuals to obtain funds that they would not be able to obtain at the bank or via a different lender. Thus crowdfunding can be a powerful source for a local economy.