Published: Tuesday, May 21, 2024
At a recent meeting of the Small Business Capital Formation Advisory Committee, the possible rule change was discussed. However, the change is not yet officially approved. Adopting the rule change would increase the limit on raising money through crowdfunding without independently certified reports. Businesses can currently request up to 124,000 dollars without the need for additional documentation. Businesses can raise more money than this, but will need to provide additional documentation. This extra paperwork often costs up to $10,000 and requires extra time and resources. Businesses would be able to request as much money as they want before the requirement kicks in.
This requirement was put in place to protect investors from fraud. The SEC does not want businesses to have unlimited access to funds without providing documentation on their financial needs or what they may use the money for.
The current limit has been in effect for many years. The committee has considered an increase due to many factors including inflation and the difficulty of many small businesses in obtaining traditional bank loans.
“We want to remove the requirement where the burden is too great, not the whole requirement,” said Erica Duignan, Chair of the Committee, during a recent hearing.
George Cook, the co-founder, CEO and chairman of crowdfunding platform Honeycomb Credit, and a member of SEC’s committee, said that traditional lenders no longer have access to capital. The more capital the business has, the better it will do.
This proposed change is intended to increase investment in small businesses, and reduce the burden on those who might need to borrow large amounts. They can use the funds they raise to improve their business and put money back into economy instead of paying for independent financial reviews or other fees.
There is no date for the review of this proposal. The change in rules is not yet official. If the new limit is implemented, it could be a great opportunity for small businesses to raise capital.