A product startup often pays for molds and other tooling months before its first sale. A crowdfunding campaign can raise this money if enough consumers pay for the product in advance. A small business loan requires no pre-sales, but monthly repayments usually begin shortly after the money arrives. Although campaign preparation is FundChaser’s main service, we recommend a loan to some clients, either before a campaign or in its place.
Crowdfunding vs. Business Loans: What the Company Owes in Return
Money from a reward campaign obliges the company to deliver the product it promised, usually several months after the campaign ends. Backers in other crowdfunding models may receive shares or interest instead. Kickstarter’s rules prohibit equity offers, so you keep full ownership of the company. However, making and shipping the rewards usually takes a large part of the money raised.
You must repay borrowed money with interest on the dates in the loan contract, even after a slow month. The lender earns that interest and asks for no share of the business.
Kickstarter vs. Bank Loan for a U.S. Startup
| Terms as of October 2026 | Reward crowdfunding | SBA 7(a) bank loan |
|---|---|---|
| Direct cost | 5% platform fee and 3% + $0.30 per pledge on Kickstarter, 5% and 3% + $0.20 on Indiegogo | Variable rate of up to prime + 3%-6.5% by loan size, or a fixed rate with its own cap. Prime, the banks’ benchmark rate, was 7.00% in late September 2026 |
| Upfront cost | Campaign preparation, paid before launch | Guarantee fee of the U.S. Small Business Administration (SBA), set by loan size |
| Time until funds arrive | Campaign of 1-60 days. Payout after 14 days of pledge collection and a 3-14 business-day transfer | 30-90 days for most SBA loans |
| Success rate | Just over 40% of Kickstarter projects reach their goal (January 2025) | 52% of applicants fully approved, 48% among firms aged 0-5 years (Federal Reserve survey, 2025) |
| Collateral (assets the lender may claim) | Not required | None required by SBA up to $50,000. Lender’s own policy on 7(a) Small loans. Available business assets on standard 7(a) loans |
| Personal guarantee (a promise to repay from your own assets) | Not required | Generally required from every owner of 20% or more |
When Crowdfunding Makes More Sense Than a Loan
A campaign is the stronger option for a consumer product people can judge from a video. Kickstarter asks creators of manufactured products to show the current prototype. A company can launch before it has any revenue, because the platform’s checks apply to the creator’s identity and bank account.
After the campaign, you’ll know which reward sold best and where your backers live. You can base the first factory order on the pledge count for each reward. Backers also remain reachable through project updates, so you can announce a second product to people who have already bought from you.
Results From Our Campaigns
We have prepared more than 50 crowdfunding campaigns. One client, the sock-shoe maker Skinners, asked for $10,000 on its first Kickstarter project in 2016. More than $650,000 came in from about 9,600 backers. Four years later, a second Skinners model passed $600,000 in two weeks. Snowfeet, another client, collected about $444,000 for its ski skates on Indiegogo in 2018.
What to Prepare Before Launch
A campaign needs a video, photographs, page copy, and an advertising plan. Our team prepares all four as part of our campaign services. These costs come due before the first pledge arrives. We advise paying them from savings or existing income, since the money is spent even if the goal isn’t reached.
On the goal itself, Kickstarter’s guidance is to set the goal at the minimum cost of making and delivering the rewards. Every pledge above that amount still goes to the company. By the platform’s count, campaigns of 30 days or less reach their goals more often. You can relaunch an unfunded project later with a lower goal or a different reward.
When a Small Business Loan Is the Better Choice
In these situations, we usually advise borrowing.
- Service companies: A consultancy or an agency can’t use Kickstarter at all, because its rules exclude projects built around a service.
- Suppliers to other businesses: Industrial parts and wholesale goods rarely attract individual backers.
- Firms that need working capital: When a company invoices other businesses, it’s often paid weeks after delivery. Until those payments come in, a loan can finance wages and other day-to-day costs.
- Founders with a firm production deadline: The amount and the payout date of an approved loan are fixed in advance.
Loan Types by Purpose
The company receives a term loan in one payment and repays it on a fixed schedule. A business line of credit lets the company draw cash up to an agreed limit in months when expenses rise. Interest accrues only on the amount drawn.
Lines of credit are the most requested product in small business financing. In the Federal Reserve’s latest Small Business Credit Survey, 43% of loan applicants applied for one.
Each SBA program has its own maximum amount and term.
| The money is for | SBA program | Loan size | Repayment term |
|---|---|---|---|
| Working capital and inventory | 7(a) Small loan | Up to $350,000 | Up to 10 years |
| Expenses that recur through the year | SBA Express line of credit | Up to $500,000 | Revolving, up to 10 years |
| First equipment or supplies | SBA microloan | Up to $50,000 | Up to 7 years |
| A building or heavy machinery | 504 loan | Up to $5.5 million | 10-25 years at a fixed rate |
| A larger project or an acquisition | Standard 7(a) loan | Up to $5 million | Up to 10 years, or 25 for property |
The SBA Guarantee and Loan Costs
On a 7(a) loan, you’ll deal with the bank from the application to the final payment. SBA’s role is limited to a guarantee. If a loan of $150,000 or less goes unpaid, the agency will repay the bank up to 85% of the remaining balance. As a result, an SBA loan for startups is open to companies with a short operating history.
Until September 30, 2027, SBA charges a one-time fee of 2% of the guaranteed portion on loans up to $150,000. Lenders may pass this cost on to the borrower. Payments on a variable-rate loan will rise whenever prime goes up.
Manufacturers pay no guarantee fee on loans of $700,000 or less. The same exemption applies to businesses in rural areas and to food supply chain industries listed by NAICS code, a federal industry classification. A startup whose product is made by a contractor may be classified outside manufacturing in this system. You can confirm your code with the lender before you apply.
Where to Apply
In the Federal Reserve survey, small banks fully approved 57% of their applicants, more than any other type of lender. At online lenders, six in ten borrowers reported higher costs than they had expected, against 32% among large-bank customers. Before you sign with any lender, we recommend asking for the total repayment amount and every fee in writing.
SBA’s free Lender Match tool is another place to look for a lender. Within two business days after you fill in a short online form, you’ll receive contact details of lenders interested in your business. You’ll still submit a full application to the lender you choose. Since banks with Preferred Lender status approve SBA loans without a separate agency review, their decision may come sooner.
Can You Use Crowdfunding and a Business Loan Together?
Yes, a company with a physical product can use these startup funding options in sequence. Our usual advice is to launch the campaign first.
Campaign First, Loan Second
Weak sales were a reason for 29% of denied applicants in the same Federal Reserve survey. A funded campaign provides documented proof of sales. A loan officer can verify it through the platform’s payout statement and your delivery records. A campaign won’t change the other common reasons, existing debt and a low credit score.
It’s better to apply for the loan after the rewards are delivered, because a lender may treat undelivered pledges as an obligation to backers. After delivery, you can finance the second production batch with a line of credit.
SBA requires a startup in its first year to contribute at least 10% of the project cost from its own funds. This contribution is called the equity injection, although no shares are sold. Under SBA procedures, cash the company didn’t borrow counts toward it. Money left from the campaign after delivery may qualify.
Loan First, Campaign Second
A loan comes first when the prototype still needs funding. An SBA microloan can pay for this stage of development. Nonprofit lenders issue these loans at 8%-13% interest. A typical microloan is about $13,000. Many of them also advise borrowers on business management.
Loan crowdfunding is another option at this stage. Individual supporters fund a loan to a small business through a platform, sometimes at no interest. On Kiva, a nonprofit platform of this type, a U.S. business can borrow up to $15,000 at 0% for 12-36 months. Such a loan may provide enough startup capital for a prototype, but production will depend on the campaign result.
If the right order for your product isn’t clear, you can send us a short description through our contact page.
What Lenders and Backers Look At
SBA lenders assess repayment capacity under criteria set in federal rules. Backers look at the same four areas of a business as lenders, yet they accept far less formal evidence.
| What is checked | What backers look at | What lenders look at |
|---|---|---|
| The product | Reward price and estimated delivery date | Market analysis in the business plan |
| The founder | Earlier campaigns and replies to comments | Credit history of the owners and guarantors |
| Money raised or earned | Amount pledged and count of backers | Cash flow of at least 1.10 times the loan payments on a 7(a) Small loan |
| Supporting documents | The campaign page | A business plan with five-year projections and recent bank statements |
A 2014 study of about 48,500 Kickstarter projects linked funding success to a project video and to updates posted in the first days. Project pages with spelling errors were funded less often. We recommend writing the first updates for backers in advance.
FAQ
Will the IRS Tax Money Raised Through a Campaign?
Yes, because the IRS treats pledges paid in exchange for a product as taxable income. Only money given as a gift, for nothing in return, may be excluded. You’ll owe tax on the profit left after production and other deductible costs. The IRS suggests keeping campaign records for at least three years.
Payment processors report campaign payments on Form 1099-K. You and the IRS will receive this form once payments exceed $20,000 across more than 200 transactions. Payments below this threshold are still taxable. Loan proceeds aren’t income, because the company has to repay them.
What Happens if a Campaign Misses Its Goal?
Backers aren’t charged and the company owes no rewards. Kickstarter collects pledges only from projects that reach the full goal by the deadline, a rule known as all-or-nothing funding. Indiegogo moved to the same rule in October 2025, when it ended flexible funding, the option to keep pledges after a missed goal.
Can Foreign Founders Use SBA Loans or Kickstarter?
SBA loans are closed to foreign founders. As of March 1, 2026, every owner must be a U.S. citizen or national whose main home is in the United States. Green card holders don’t qualify either. Banks set their own ownership rules for loans without an SBA guarantee.
Kickstarter accepts creators from 25 countries, provided the creator’s business is registered in the launch country. Founders from elsewhere, the Czech Republic among them, will need to register a company in an eligible country before the campaign. Our administrative service manages these formalities for European projects.
Can Loan Money Pay for Campaign Advertising?
Yes, provided the lender accepts this purpose. Campaign advertising may qualify as working capital, a permitted use of 7(a) loans and microloans. Loan payments will still be due if the campaign is unfunded. It’s safer to borrow for advertising when current revenue can repay the loan.
How Is Equity Crowdfunding Different?
In an equity campaign, investors pay for a stake in the startup and become its co-owners. You can raise up to $5 million in any 12 months this way under Regulation Crowdfunding. Your offering has to go through a funding portal or broker registered with the Securities and Exchange Commission (SEC). Before it opens, the company files its disclosures on Form C.