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Small Business Owners Wary of Crowdfunding, Study Shows

June 5th, 2012 ::

By Karen Axelton

Small businesses are still struggling to obtain the financing they need, and the challenges of finding capital are restricting their opportunities to grow and to hire new employees, reports a study by Pepperdine University’s Graziadio School of Business and Management together with Dun & Bradstreet Credibility Corp.

Given the challenges of obtaining traditional small business financing, you might expect small business owners would be eager to take advantage of the recently passed JOBS Act’s easing of restrictions on crowdfunding. But only 3 percent of small business owners surveyed thought the JOBS Act would increase the likelihood of companies raising money through crowdfunding. Fifty-three percent don’t think the JOBS act will make it more likely that business owners will raise money through crowdfunding, and 45 percent said they weren’t sure what effect it would have.

In the survey of nearly 6,000 business owners, 64 percent of those with revenues under $5 million said difficulty securing financing is limiting their growth potential; 55 percent said it is hindering their plans to expand their workforce. The states with the highest percentage of business owners saying the financing environment is restricting their growth are:

  1. Nevada (75 percent)
  2. New Mexico (72.6 percent)
  3. Maryland (70.5 percent)
  4. Florida (70.2 percent)
  5. Virginia (68.8 percent)
  6. Delaware (68.2 percent)
  7. North Carolina (67.7 percent)
  8. California (67.4 percent)
  9. Georgia (66.9 percent)
  10. South Carolina (66.1 percent)

While small businesses and entrepreneurs have long raised donations from individuals via crowdfunding sites such as Kickstarter and IndieGoGo, the JOBS Act eases restrictions so that companies can raise investments, rather than just donations. The goal is to  make it easier for small businesses to raise capital without the lengthy process of registering documents with the Securities and Exchange Commission.

However, the SEC still has to finalize regulations to govern crowdfunding, which will not take place until the end of 2012 or later. The uncertainty in the Pepperdine/D&B Credibility survey might reflect the fact that the details of crowdfunding are still up in the air.

In the meantime, in the six months that ended March 31, small business owners used more traditional methods to obtain capital. Seventy-one percent got financing from friends and family; 62 percent used personal credit cards; 59 percent used business credit cards and 45 percent got bank loans. Nearly half (46 percent) of business owners with revenues under $5 million say they have transferred personal assets, such as money from savings accounts or investments, to their business in the past six months.

Image by Flickr user Kevin Briody (Creative Commons)

The views expressed here are the author's alone and not those of Network Solutions or its partners.

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