The Jumpstart Our Business Startups (JOBS) Act from the House of Representatives was tweaked and passed by the Senate last week, received and approved by the House this past Tuesday, and is now on its way to the President for signature. This act should make it easier for companies to go public and for entrepreneurs to raise money over the Internet through a growing phenomenon called “crowdfunding.”
Crowdfunding is an alternative lending process where a group of people can pool their funds and resources, usually through the internet, toward some common cause. Historically, the practice was used in charity, social causes, and in the music and film industries. In the last few years however, small business startups, growth companies, and municipality examples are becoming more and more common. Internet sites like Kickstarter have raised awareness and popularity even more.
The new crowdfunding legislation is for entrepreneurs trying to raise $1 million or less, and investors would be limited to putting up no more than $10,000 (or 10 percent of their annual income). Those small business owners who can’t obtain traditional financing, attract other outside investors, or participate in an incubator are especially interested about the news on Capitol Hill. Others still oppose the concept of crowdfunding and see it as an opportunity for fraud, abuse, and just plain bad investing.
That’s why senators amended the bill to include more restrictions:
– Companies using crowdfunding must provide financial statements to investors.
– Companies seeking $100,000 to $500,000 would be required to have independent accountants review these statements.
– Companies seeking greater than $500,000 would need audited financial statements.
– The website companies or intermediaries that offer crowdfunding investment opportunities to the public will be required to register with the Securities and Exchange Commission (SEC).
This is an interesting story that’s developing and one that could forever change the landscape of commercial lending. It’s also refreshing to see the bipartisan support for a bill that should help small businesses grow and create jobs.
Edward Livesay
