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Crowdfunding Becomes New Funding Source For Business Buyers

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crowdfundingSince economy downturn of 2008 it became increasingly hard to get bank financing for buying a business. Bank's direction on minimizing investment risk was taken into extreme - they simply don't want to take any risk any more. We always thought that banks make money by loaning money, however they survive pretty well without it. At least, without offering business acquisition loans.

How does it affect business buying process? - It forced our clients to avoid going to the bank as much as possible. Some flavor of seller's financing became a norm. However, sometimes ends simply can't meet. Getting third party financing would be really helpful to close the deal.

Welcome to Crowdfunding - new financing paradigm - where multiple independent investors have opportunity to pitch in and become silent partners in the business. Thousands of people are ready to spare $25, $100, or $1000 dollars and own a piece of the business - become an equity partner with the new owner.

Are you ready to start investing?... Hooold on, such investment isn't legal in the US, yet. In mid-November 2011, House approved a bill called Entrepreneur Access To Capital Act, HR 2930. Now, it has to be approved by the Senate to become a law. However, Senate approval isn't as certain as one might think. There's powerful lobby fighting this bill off the Senate floor. Who is against? Stock brokers and investment bankers, and everybody else who're feeding from IPOs and selling securities. They're rightfully afraid that their pot of gold can get considerably lighter. They're trying to scare regular Americans claiming that such investments may create opportunities for a fraud and investors won't be protected. However, they don't complain that people can leave in Las Vegas all their money, house, retirement funds, family - everything!

Future of our economy is directly connected to success of small businesses. Having active business marketplace is vitally important for small business development and growth. People should be able to buy and sell a business. Crowdfunding should provide such opportunity. If you care about the future of small businesses, contact your senator and request to support HR 2930!

Comments

  • Guest
    CrowdStem Sunday, 12 February 2012

    Re:

    Well written article. What the Senate should be aware of is that most companies that are listed on equity-based crowdfunding platforms are nowhere near the IPO stage. They are, for the most part, still in their infancy, and if it were not for the crowdfunding platforms, such as the one we are in the process of building, then these companies would never have the capital to even reach IPO stage. Equity-based crowdfunding is a means to inject capital into fledgling start-ups so they too can have the necessary capital to grow, and give the small-time investor to participate in that growth as well.

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Guest Friday, 24 March 2017