Lack of Bank Financing
Since 2009, bank financing has pretty much dried up. Banks are holding a growing number of reserves, and taking very little risk. As one of my customers that was attempting to create property said,”If I had a million in the bank, the bank would loan me a million.” Banks really don’t need to touch risky ventures such as property and growth of new unproven services and products. If the bank and your rich uncle won’t finance your enterprise, can you ask others to invest in your organization?
In the U.S., the answer is yes, with qualifications. The Securities and Exchange Commission heavily regulates the transfer of securities from america, making it hard for small businesses to raise funds when attempting to comply with the SEC rules and regulations. There are exemptions to registering your business’s purchase of investments with the SEC, but attorney costs for drafting the documents necessary to protect yourself can get pricey.
Input Crowdfunding Sites
Crowdfunding sites — such as Kickstarter — are just another choice. These websites enable individuals that like your thought to contribute the cash that you will need to begin a job or expand it. The difficulty for these kinds of sites and for the individual attempting to raise capital is the”investors” are actually donating or buying the chance to support a project and might get goods or other advantages for doing this. However, they can’t get any equity in the business itself. Therefore, it’s difficult to raise a substantial quantity of capital for your venture unless you can get hundreds or thousands of individuals to contribute to your enterprise based on how much cash you require. Any substantial investor would typically wish to take part in the development of your organization, and present U.S. laws don’t permit people to do so without complying with the rigorous securities exemptions.
Kickstarter focuses on creative, artistic endeavors.
Legislation Pending to Alleviate Crowdfunding Limits
Many legislators are worried about this barrier to funding for small business and want to make it easier to begin a company in the U.S.. There are at least three legislative proposals to permit exemptions for crowdfunding. Among those bills, H.R. 2930, has already passed in the House. Another bill — proposed in the Senate — is S. 1971, which requires a more strict approach to crowdfunding by requiring an intermediary to participate in the transaction. The intermediary could be an online website that would pose as the platform of the purchase of those securities. The Obama Administration has been very supportive of the home bill titled the Entrepreneur Access to Capital Act, which enables organizations to utilize crowdfunding to raise up to $1 million or up to $2 million if the investors are provided with audited financial statements. The investments for every individual investor could be capped at $10,000 or 10 percent of the investor’s yearly income, whichever is less.
Right now, the House bill is stuck in the Senate due to lobbying by many groups who assert that small investors will need to be protected and shouldn’t be permitted to spend in speculative ventures. This argument ignores the fact that anybody can spend their entire paycheck in a casino on a single hand of blackjack. Hopefully, the Senate will observe that small companies need access to capital to help our economy grow and pass one of the bills offered shortly. With the prevalence of crowdfunding sites, the web has proven that people are prepared to invest in ideas that they like and the government shouldn’t stand in their way.