Columbus, Georgia – July 16, 2014 – Crowdfunding has gained popularity as a means of raising capital when other avenues are either not possible or not effective. But what exactly is crowdfunding? Crowdfunding involves collecting money to help start a business, fund a charity, or provide financial assistance to a person in need. Crowdfunding allows individuals to pledge funds, sometimes as low as $1, towards a startup or a charitable cause. Investors in startups often expect some return on investment. Donors for social causes enjoy being able to donate quickly and efficiently to a specific cause. However, as with all endeavors, there are pitfalls. Scammers do not discriminate between investors and donors.
Whether you wish to invest in a startup or wish to donate to a cause, the BBB advises that you do your homework before pledging your funds.
- Do your best to verify that the project is legitimate. If a crowdfunding site specializes in a particular kind of crowdfunding activity (such as medical funding, school projects, etc.) there is a greater chance that they will recognize problems as they develop. Do proposal details check out? Is there verifiable contact information? If you are donating to a charitable organization, confirm their registration with state government agencies and check them out with BBB Wise Giving Alliance. If a project is providing periodic updates of its progress, expenditures and accomplishments, this provides greater assurance that the individual or organization is seeking to responsibly use collected funds.
- Know what happens to your money. If projects do not reach funding goals, will money be returned? How will money be returned? What is the timeline for getting money back? If projects do reach funding goals, how long until startups are operational? How long until there are profits? When can investors expect to earn returns or see physical products? Are there contingency plans for failing projects if fund requirements are met?
- Is your donation tax deductible? If a donor contributes to a charitable project that has been posted on a crowdfunding website that is owned and managed by an organization with Internal Revenue Code section 501(c)(3) charitable tax-exempt status, chances are good that the donation is tax deductible (don’t forget to check the tax –exempt status). However, donations for crowdfunding projects to help a specific individuals have very little chance of being tax deductible. If tax deduction is a concern, consult a tax professional prior to donating.
- Read the fine print. Crowdfunding sites will vary in terms of their privacy policies, under what conditions donations will be refunded if at all, and whether the donor or the project organizer will be charged for site administrative costs and credit card fees. Read the site’s terms and conditions. Often those sites disclaim all legal responsibility for projects or representations made through them, and do not offer any aid to investors if things go wrong.
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Contact BBB serving East Alabama, West and Southwest Georgia at (706) 324-0712