The truth about crowdfunding to access capital for small biz

Many small business owners “in the fringe” are looking at crowdfunding as a way to access capital for their small businesses but not everything is as simple as making your plea online.

Posted by Dustin McManus on November 19, 2014 on the Small Business Majority Blog.

Q: How do small business owners feel about access to capital?

A: Access to capital has been a persistent problem for entrepreneurs, particularly since the recession. While some parts of the business community have found it easier to secure capital, there are significant gaps in critical areas, such as minority and rural communities, as well as for groups of entrepreneurs like women and veterans. Our opinion polling found that an overwhelming 90% of small business owners nationwide agree that access to credit for a small business is a problem, with 61% agreeing it’s harder to get a loan now than it was before the 2008 recession.

Q: How does crowdfunding relate to access to capital?

A: Crowdfunding is a method of funding by raising monetary contributions from a large number of people, typically online. Small businesses have seen the rapid growth of alternative sources of capital like crowdfunding, which leaves entrepreneurs at risk due to the lack of fair and clear regulations on this new venture. Policymakers must address the risk that comes with alternative sources of capital that balances very real opportunities without stifling this same innovation that has the potential to create more options and points of access to capital for small businesses.

Q: How can lawmakers ensure fair regulation of crowdfunding to protect small businesses?

A: The JOBS Act of 2012 required the SEC to issue guidance on crowdfunding. Lawmakers should issue these final rules as quickly as possible, with no further delay, and strike the appropriate balance between oversight and opportunity.

Q: What else can be done to help small businesses access capital more easily?

A: One solution is to change outdated regulations that limit credit unions from meeting small business needs. Currently, there are federal regulations in place that bar credit unions from lending more than 12.25% of their assets to businesses, resulting in businesses belonging to these credit unions having $13 billion less in capital available to them. Bipartisan legislation in Congress would change this and allow credit unions to lend up to 27.5% of their assets, increasing options for small businesses and creating thousands of new jobs with no additional risk for taxpayers.

Q: What about efforts for entrepreneurs that are historically underserved in accessing capital like minorities and women?

A: Continuing to support and expand efforts by the SBA, USDA and other agencies to close gaps through loan guarantee programs will help serve minority, women, veteran and rural entrepreneurs in their attempts to access capital. With innovative new ways of streamlining and simplifying loan-making for small businesses and opening new avenues of capital for them being used, the existing needs of minority entrepreneurs will can be met in order for them to continue serving their function as job creators. Particularly for women, who account for only 16% of conventional small business loans, legislation such as the Women’s Small Business Ownership Act would address this gender gap in lending by expanding or improving SBA programs to reach more women seeking business loans.