Given the challenges that small businesses and entrepreneurs face in raising capital, crowdfunding is a powerful tool to help businesses to get established and create new jobs in America’s communities.
Crowdfunding refers to raising investment funding in small increments from a large number of people, often through Internet marketing. Currently, crowdfunding exists mostly in the form of websites like Kickstarter and Indiegogo, where funders can support a project in exchange for rewards like early access to products or services, but not an ownership stake in the company.
When done correctly, crowdfunding has the potential to be a very useful tool in opening up access to capital for business especially in the context of community-based financing of local projects. However, Securities and Exchange Commission (SEC) rules have previously made this type of small dollar investment cost prohibitive due to registration and reporting requirements at both the state and federal level.
On April 5, 2012, President Obama signed the JOBS Act (H.R. 3606), which included an amendment from Senator Jeff Merkley (D-OR) known as the CROWDFUND Act. The Merkley amendment provided a framework for the SEC to promulgate rules that make crowdfunding possible, while implementing adequate oversight and protection against fraud.
Following the Act’s passage, the SEC began developing the final rules for how crowdfunding would be regulated. ASBC submitted comments to the SEC for its crowdfunding rulemaking process, which is still underway. On October 23, 2013, the SEC issued a set of proposed rules under the JOBS Act. Some concerns raised about the costs for businesses to comply with these regulations, and the cost of entry for prospective funders.
ASBC continues to explore ways for the private and non-profit sectors to promote well-designed and well-managed online intermediaries (called “fundraising portals”) that will protect investors and help the best quality deals reach the investing public.
In addition to its engagement with the SEC to promote appropriate rules for crowdfunding, ASBC is collaborating with businesses to help them understand the needs for capital in communities across the United States, and encourage the deployment of crowdfunding portals that meet these needs. Learn more about local portals and how they can be deployed.