Sufficient capital and resources remain the key to helping small businesses survive the pandemic, according to a top ambassador for small business in Washington.
Karen Kerrigan, the CEO of the Small Business & Entrepreneurship Council, said that crowdfunding platforms could be a “big solution” to capital problems facing small businesses.
Crowdfunding is the practice of funding a business or a venture by raising many small amounts of money from a large number of investors, typically via a platform on the internet.
“A lot of investors and successful entrepreneurs are starting up different funds and grant funds to give small businesses $3,000 or $5,000 in a grant to help carry them over to the other side of the crisis,” said Kerrigan.
Kerrigan said that many such investors, both big and small, are starting to channel their funds to help small businesses through crowdfunding platforms because the Securities and Exchange Commission recently loosened restrictions temporarily on crowdfunding regulations to allow capital to flow in a timely and cost-effective manner during the coronavirus crisis.
Some of the temporary crowdfunding deregulations the commission has implemented are allowing for broader eligibility, earlier access to funds, and an exemption from certain financial statement review requirements that can be cumbersome for many small businesses.
Kerrigan grew up in a small town in upstate New York where she said she personally got to know all the local businesses in her area and saw firsthand the benefits of mom and pop stores.
After studying political science at the State University of New York, Cortland, she came to Washington to get involved with the advocacy world and has been championing small-business causes for the council for the past 26 years. Making it easier for small businesses to raise money through crowdfunding has been a key initiative of hers in the past few years.
The crowdfunding space began to be regulated by the SEC just a few years ago in 2016 to allow a larger number of people to become investors, not just those who are wealthy and certified.
“Millions of new investors have entered the space because the big issue in regulated crowdfunding was to allow nonaccredited investors to invest in the businesses they believe in, not just accredited investors,” Kerrigan said.
She added that leading up to the coronavirus pandemic, crowdfunding platforms were continuing to see “healthy increases” in investors. Many such platforms have seen record highs in their investments recently.
West Hollywood-based StartEngine had its most successful quarter ever, helping startups raise more than $24.4 million, while San Francisco-based Wefunder’s platform raised $2 million in May for the first time in its history.
Although it took the commission many years to regulate crowdfunding and to give clear rules and guidelines, Kerrigan said, regulating the industry has actually brought more legitimacy and trust to the platforms and enabled significant new investing to occur.
“The crowdfunding platforms sort of take away that awkwardness if you’re trying to raise money from family friends or customers and you can say, ‘Here’s a framework that we can use,'” Kerrigan said.
Instead, thanks to these platforms, investors know right from the start now what kind of return they’re likely to get and what rights they have, while entrepreneurs and business owners looking for investments don’t have to hire lawyers and accountants to create a sense of credibility, said Kerrigan.
After becoming regulated, the crowdfunding space now has over 60 platforms within the United States, and over 1,900 new small businesses have been funded in the past few years.
As the coronavirus pandemic continues to hurt the bottom lines of businesses around the country catastrophically, Kerrigan said small-business groups and regulators such as the SEC are trying to “prime the pump” when it comes to crowdfunding platforms.
Kerrigan said it was a good time for small businesses to consider crowdfunding platforms because “there’s new tools out there that are being offered by these platforms to make it easier for you.” She said platforms can now help small businesses raise money based on their existing debt and commitments, among other ways to attract investors and tap into the vast reservoirs of liquidity and capital that crowdfunding platforms can offer.
“There’s significant capital out there. It’s just it has to be unlocked by investors seeing good ideas in the marketplace or solid ideas, and that’s what the platforms are doing,” Kerrigan said.
