Critics argue, and they could be right, that this might enable unscrupulous entrepreneurs to take advantage of inexperienced and less-than-savvy investors. It basically overturns a law established during the Great Depression that did exactly that. However, it does provide an opportunity for small-business owners to raise funds they might have to otherwise find by going hat in hand to family members, another option. If the recent Pepperdine report does nothing else, it illustrates how difficult it is for small-business owners to find capital. This has the potential to do something about that.
Saying that, I realize that small, Main Street businesses are risky endeavors and investing in them is not for the inexperienced or the faint of heart. P.T. Barnum supposedly said, “There’s a sucker born every minute.” Although I think this could be a potential boon to entrepreneurs — and likely many investors — let the buyer beware. In other words, I would suggest potential investors don’t jump in with both feet. Small businesses fail. That’s what they do. Even great ideas fail. Only half of small businesses make it to their 10th birthday. Make sure you’re up to the risk many professional lenders choose to avoid.
I’m in favor of anything that allows small business greater access to more capital, and that includes a small business loan or equity funding — including crowdfunding. Washington likes to talk about creating jobs and growing the economy. Small-business owners shouldn’t have to play a game of hide and seek to find it. I think this new move by the SEC might do just exactly that.
As a Main Street business evangelist and marketing veteran with more than 25 years in the trenches, Ty Kiisel writes about leading people and small-business issues for lendio.com.