Small business owners aren't excited about a new law that will allow them to raise money by soliciting investors on the Internet, according to a survey made available to The Associated Press.
Only 3 percent of business owners surveyed by Pepperdine University and Dun & Bradstreet Credibility Corp., say the passage in March of a bill known as the JOBS Act increases the likelihood that companies will raise money through a practice known as crowdfunding.
Under crowdfunding, companies will be able to use websites that will link them with millions of investors and allow them to each raise up to $1 million a year. The sites won't begin operating until the Securities and Exchange Commission creates regulations to govern crowdfunding, and that's not expected to happen until the end of this year at the earliest.
Charities have used crowdfunding for years to raise money. Crowdfunding could make it easier for small businsses to raise money with having to go through a long and often expensive process of registering documents with the SEC — that is what companies must do now to solicit money from more than 500 investors.
But the Pepperdine/D&B Credibility survey shows that a majority of business owners — 53 percent — don't expect the passage of the JOBS act to make it more likely that business owners will raise money through crowdfunding. Forty-five percent said they weren't sure.
One reason for owners' lack of enthusiasm may be the fact that there are many unanswered questions about how crowdfunding will work, given that the SEC is still working on the rules. Business owners may also be wary because they don't know yet what it will be like to run their businesses while having investors who might want a say in how a business is run.
The survey is part of a quarterly look by Pepperdine and D&B Credibility at how companies raise money. The full survey will be released on Wednesday.
The portion released to the AP showed that during the six months ended March 31, small business owners followed some traditional paths in raising money. Seventy-one percent said they obtained money from friends and family. Sixty-two percent said they used personal credit cards, and 59 percent used business credit cards. Forty-five percent said they got loans from banks.
The survey results were compiled from nearly 6,000 responses to a questionnaire distributed to companies in D&B Credibility's database.