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Promising Future for Equity-Based Crowdfunding

Release Date: 
Tuesday, April 14, 2015 - 12:00am
Release Number: 
15-02
Contact: 
Elle Patout

For Release: April 14, 2015                                                                                                                         

SBA Number: 15-02 ADV                                                                               

 

Contact: Elle Patout

Elle.Patout@sba.gov

 

Promising Future for Equity-Based Crowdfunding

Advocacy releases issue brief which discusses the potential for future equity-based crowdfunding.

 

WASHINGTON – Today, the Office of Advocacy, an independent office within the Small Business Administration, released an issue brief entitled Equity-based Crowdfunding: Potential Implications for Small Business Capital. There are three basic types of crowdfunding investors.  These private individuals give money in exchange for a clearly defined good (reward), a piece of the venture (equity), or a loan agreement (peer-to-peer). Today’s issue brief focuses on equity-based crowdfunding—one major crowdfunding method that remains untapped but is under consideration in the United States.

            “Crowdfunding is now estimated to be worth $3 billion to $5 billion worldwide,” said Christine Kymn, Chief Economist and Director of Economic Research for the Office of Advocacy.  “However, one avenue of crowdfunding remains closed as regulators contemplate equity opportunities and investor protections.  Today’s brief shows how investors might unlock even more financial capital for America’s small businesses.”

 

Key takeaways from today’s issue brief:

  • For the past two decades, economists have seen a 27% decrease in the availability of small loans, and as a result, small businesses are seeking out alternative forms of capital.
  • Title III of The JOBS Act (2012) requires the Securities and Exchange Commission to create a regulatory framework for equity-based crowdfunding, but the proposed rule has not yet been finalized.
  • Unlike traditional bank loans or credit cards, equity-based crowdfunding allows small business owners to raise much-needed capital from investors without having to take on debt.
  • Current models exist internationally that could provide an operational framework for equity-based crowdfunding platforms in the United States.
  • Although the SEC has not yet finalized the rule, which would permit equity-based crowdfunding while balancing against investor protections, there is already a promising future for this funding model.

Please check out the issue brief here on the Office of Advocacy website. 

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The Office of Advocacy of the U.S. Small Business Administration (SBA) is an independent voice for small business within the federal government. For more information, visit www.sba.gov/advocacy, call (202) 205-6533 or get updates on Twitter (@AdvocacySBA) or Facebook at www.facebook.com/AdvocacySBA