Looking for a cash injection? Crowdfunding is the latest buzzword trending in creative businesses.

Industry member, Jonathan Saunders's Autumn/Winter 2012 collection

Securing finance has always been an age old problem for SMEs – especially when a fragile economic climate means that banks are increasingly reluctant to lend. Headlines reported that bank loans to British businesses fell at the fastest rate in almost two years last February; underlining the fact that traditional investment models are no longer the most successful way for UK firms to raise growth equity.

Crowdfunding – the method of sourcing capital from a pool of online investors – is becoming an increasingly popular alternative for the creative sector. The technique lends itself particularly well to young designer businesses partly because the investment market is currently unsaturated. Private equity firms tend to only lend to larger companies whilst banks are hesitant to lend to smaller start-ups with no track record. Crowdfunding fills this gap with everyday people looking to contribute small amounts of money to a cause they are personally interested in.

Emerging consumer product companies are a favourite with investors as they offer something material in return. For example first dibs on a cool new product, a stake in a fashionable company or more recently profit. Whilst there is a limit on the amount of money businesses can make through crowdfunding, the technique is relatively inexpensive to conduct and a great way to market the project. Yet perhaps most importantly, the technique opens entrepreneurs up to valuable feedback from a consumer rather than a corporate perspective – an audience that understand the market personally.

By The Industry's Features Editor, Harriet Bowe

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