NSBA Releases White Paper on Capital Access

September 11, 2013

pic-moneyNSBA has released a white paper making a series of recommendations to Congress about how to improve small businesses access to capital. Small-business owners face unique challenges when trying to obtain financing. Start-up and expanding small businesses frequently do not have the assets necessary to collateralize a traditional bank loan, making a unique perspective for small-business access to capital critical. The paper, “Ideas for Improving Small Businesses’ Access to Capital,” may be accessed by clicking here.

The core recommendations to Congress are:

  1. Rely more on statutory rules than SEC drafted rules.
  2. Create a statutory exemption for business brokers to the broker-dealer registration requirements consistent with the principles of the SEC Country Business no action letter dated November 8, 2006 but extended to include the sale of a controlling interest in the business rather than being limited to the sale of the entire business.
  3. Create a statutory exemption to the broker-dealer registration requirements for finders who are not “engaged in the business of effecting transactions in securities for the account of others” or of “buying and selling securities” and, as a integral component of that exemption, provide a bright-line safe harbor such that small finders are not deemed to be engaged in the business of being a securities broker or a dealer.
  4. Create a statutory definition of accredited investor that prevents the current thresholds for natural persons from being increased.  In other words, make the current accredited investor income and net worth standards statutory.
  5. Either define covered securities to include securities sold in transactions exempt under Rule 504, Rule 505 and Regulation A (in addition to Rule 506) or define qualified purchasers to include all purchasers of securities in transactions exempt under Rule 504, Rule 505 and Regulation A (in addition to Rule 506), or both.
  6. Allow persons to definitively qualify as a sophisticated investor for purposes of Rule 506 by passing an exam.
  7. Create a private placement safe harbor so that any offering (within a 12 month period): (1) to people with whom the issuer (or its officers and directors) has a substantial pre-existing relationship; (2) involving 35 or fewer other persons; or (3) of less than $500,000 is deemed not to involve a public offering for purposes of section 4(a)(2).
  8. Eliminate the internal control reporting and assessment requirements of Sarbanes-Oxley section 404(b) for companies with market capitalizations of $300 million or less.
  9. Repeal the restrictions on credit union lending to small businesses.
  10. Permit Peer-to-Peer Lending portals to provide loans to small businesses without filing a registration statement.
  11. Simplify the statutory small issue exemption (Regulation A) and permit but not require Reg. A offering statements to be placed on EDGAR.
  12. Amend the Bank Secrecy Act to make it clear that federal “Know Your Customer” do not apply to finders, business brokers or crowdfunding web portals that do not hold customer funds.
  13. Improve SEC collection of data on private placements and Regulation A offerings and ensure the data is published regularly without materially increasing the administrative burden on issuers.
  14. Have the Government Accountability Office (GAO) undertake the following potentially  helpful studies:
    • Examine whether bank regulators inappropriately treat small business loans as disproportionately risky, thereby discouraging bank lending to small firms.  Generally, bank regulators deny this but small business owners frequently report this as a reason given by bankers for not lending.
    • Determine the typical compliance costs incurred by issuers in various Regulation D filings and Regulation A filings.
    • Determine the typical compliance costs incurred by private placement issuers because of blue sky laws.
    • Determine the typical compliance costs incurred by small capitalization public companies.
    • Determine and quantify what are the primary sources of fraud in private placements and what percentage of offerings involve fraud.

Please click here to download the white paper.