Most employees, have a secret dream of starting a small business of their own. When a person starts a small business, it means that he is his own boss (but that doesn’t mean it’s easy). Initiating one’s own business means hard work and long work days. Moreover, funding a small business could be equally distressing – an issue that potential entrepreneurs have been struggling with for years. A majority of banks and other financial institutions do not fund small businesses without a considerable track record. Private equity is also not obtainable by almost 99.9% of all businesses. This leaves business proprietors with no other option but to ask for help from friends and relatives, seek private loans, or use retirement and savings accounts to support their businesses. However, lately, budding entrepreneurs have found a new mode of funding for small amounts of money, usually known as crowdfunding.
Crowdfunding: An overview
Crowd funding or crowd financing is described as the collective effort, concentration and trust by individuals who connect and pool their cash and other resources collectively, normally through the internet, in order to support initiatives taken by other individuals or organizations. The need for drowdfunding comes from numerous sources: citizen journalism, disaster relief, performers asking for support from fans, political campaigns, or new software development. However, in order to do this, project leaders must master some time management techniques, social expertise and a bit of talent.
How crowdfunding functions
Instead of obtaining a business loan from a bank or any other financial institution with all the harassments and years of loan payments, one now simply sidesteps this process with crowdfunding. In order to help small start-ups, a lot of new businesses have emerged, offering online platforms to help industrialists fund business ideas. Nevertheless, every crowdfunding platform has its individual rules and necessities. Some of them won’t allow you to raise funds for common use in your business, but may let you use their platform to raise money for a new promotion campaign or for a fresh product launch.
Regulation D of the Securities and Exchange Commission’s (SEC) rules restricts the total number of investors or the number of non-accredited investors before a business is necessitated to enroll and notify the SEC (an extremely costly and time consuming procedure). Some online platforms have been attempting to get around the SEC’s regulations by receiving payment on your behalf, collecting the money and providing direct loans or investments to projects or businesses. Whereas the online site basically handles the entire work here, the donor might receive a significant portion of quarterly earnings or a fraction of the future income of the appealer.
On the horizon
Recently, a letter was sent by Rep. Darrell Issa (R-CA) to the head of the SEC, requesting new regulations for small businesses employing crowdfunding for increasing equity capital. The SEC has been asked by the Congressmen to consider allocating small businesses with the facility to collect up to $100,000 on average, using a highest $100 investment per individual. The whole idea is to get the SEC to loosen up its rules concerning equity investment (laws implemented in order to protect inexperienced investors from losing life savings to deceitful companies) under the excuse that a majority of the investors could run the risk of losing $100. The SEC most recently repliedwith an apparently positive review (though no firm decision). Time will tell, but it would certainly bring in a range of funding opportunities for small businesses all over the nation.
By Andrew Jackson, financial counselor for over 4 years. He analyses people’s financial situations and advises on different debt relief options. He also helps people manage their budgets through free counseling. Jackson has covered numerous topics, including the Waterfall approach to debt free ™ living, debt snowball vs debt avalanche, and much more.