Crowdfunding Bill Would Allow People to Invest in Local Businesses

By Stacy Mitchell on November 8, 2011
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Under a measure that passed the House last Thursday, you may soon be able to invest in a portfolio of your favorite independent businesses. The bill [1], which won bipartisan support and cleared the House on a 407-17 vote, would overturn long-standing Securities and Exchange Commission (SEC) rules that make it nearly impossible for small businesses to raise capital (or borrow money) from their customers and communities.

Current SEC rules divide investors into two categories. Wealthy people ("accredited" investors) are assumed to have a certain degree of financial sophistication. Businesses are free to approach them for funding. The rest of us are covered by safeguards that bar businesses from soliciting our investments without registering a public offering of securities with the SEC, an arduous and expensive legal process that is well beyond the reach of a neighborhood restaurant or start-up clothing maker. The current rules do exempt some small investment offerings, but these exemptions are too narrow for most independent businesses to use without running afoul of the law.

The result is that, even as enthusiasm for independent businesses and locally produced goods has grown, the savings of almost all American households remains invested in the stocks and bonds of large corporations. We may buy local, but we invest transnational. There are few alternatives.

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Small-Business Credit Markets, Assessed by a Loan Broker

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Ami Kassar of MultiFunding and Lisa Iliopoulos, who is expanding her day care center with the help of a loan arranged by MultiFunding.

By ROBB MANDELBAUM

Published: February 9, 2011

Up until summer 2009, Ami Kassar was a nine-to-fiver, working for Advanta, one of the largest providers of credit cards to small business. But then the company went bust, another victim of the credit crisis, and the newly unemployed Mr. Kassar decided to strike out on his own. 

 He formed MultiFunding, a broker that helps arrange loans for small businesses. It was hardly an auspicious time to open any business, but Mr. Kassar’s challenge was particularly daunting: the freeze in small commercial loans was only beginning to thaw. Plus, business loan brokering has been a fairly obscure and even somewhat shadowy field — but one that Mr. Kassar says he believes serves a growing need. 

Running both a start-up and a loan broker, Mr. Kassar has had an unusual perspective on the small-business credit crisis. Based near Philadelphia, MultiFunding, which observed its first anniversary last week, now employs four people full time and has completed 12 transactions. It is presently helping 120 clients in 23 states secure financing. 

 Mr. Kassar, who works with companies that seek at least $250,000, said that he was able to help from one-third to one-half of his prospective clients. When MultiFunding procures financing, it takes as a fee either a percentage of the financed loan — from 1 to 2.5 percent — or, in the case of a refinancing, two months’ worth of saving over the original debt service. 

Mr. Kassar recently spoke about his business and the market for small-business lending. This is a condensed version of that conversation.

Q. What accounts for MultiFunding’s growth — marketing, or a worsening economic environment for businesses? 
 
A. I think there’s a yearning and crying out for transparency and knowledge and understanding. Most small-business owners are more tradesmen than they are businessmen, and they don’t really understand the finances.

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