Crowdfunding is a relatively new way of funding a business venture. Capital is raised by a large number of individuals each donating relatively small amounts of money. Crowdfunding is a predominantly online process, with money generated via social media and specialised crowdfunding platforms.
This can be a great way to get a business off the ground, or for an existing business to fund a new project without having to rely on the banks. While most crowdfunding platforms will undertake a vetting process before letting people start raising funds, this is typically less exhaustive than the lending criteria banks impose on potential borrowers. You will usually be asked to state how much money you are looking to raise, what this will be used for, and what return (if any) those sponsoring your venture can expect to receive.
You can fund any business you want through this method, as long as people are willing to back your idea. Those who fund the business are usually offered shares in the company in return for their contributions, although this is not always the case.
With some banks reluctant to lend to small businesses or those just starting up, the crowdfunding market is growing considerably and becoming a more mainstream way of obtaining commercial finance.