In simple terms, crowdfunding is a method where people can borrow money from private lenders without complex terms and conditions like in traditional options.
It can be of several types. Some are explained as below:
It is also known as person-to-person financing. The audience brings money to a business with the understanding the money will be reimbursed with interest. It's quite much like classic borrowing from a financial institution, but that you borrow from a lot of investors.
Leasing of a stake in a company to some number of investors in return for investment. The notion is very similar to the way the common stock is purchased or sold on a stock market, or into some venture capital.
Individuals contribute to a job or company. Expectations of getting in return a non-profit reward, like merchandise or services, in a subsequent point in the exchange for the participation.
Individuals contribute small amounts to fulfill the bigger financing aim of a charitable project whilst getting no financial or substance return.
Offer companies the opportunity to combine the components of more than 1 crowdfunding type.
Profit-sharing / revenue-sharing
Firms can discuss future profits or earnings together with the audience in exchange for financing today.
Individuals invest in debt security issued by the business, like a bond.