Entrepreneurs to soon benefit from raising up to $3M via crowdfunding
Securities Commission of The Bahamas (SCB) Executive Director Christina Rolle revealed yesterday that under the proposed Business Capital Funding Rules 2017, entrepreneurs would be able to raise up to $3 million in the capital market.
The rules, which are currently in their consultation phase, are being created to provide regulation in response to the exponential growth and use of crowdfunding.
While speaking at a recent conference, Rolle said that the country “will soon join” the growing list of jurisdictions that have implemented legislation to regulate crowdfunding activity such as Ontario, the United States and Great Britain.
The rules are expected to give entrepreneurs more breathing room by lessening some requirements by the commission such as filing a prospectus. They are set out to help migrate entrepreneurs from having to raise funds by an initial public offering (IPO).
“The commission recognizes that going directly to the market via an IPO can be an impediment to raising funds,” said Rolle.
“Specifically, the cost of underwriting fees, filing a prospectus with the commission, and securing a talented and independent board of directors to serve may be beyond the financial ability of many small businesses.
“Moreover, the commission’s continuing obligation requirements, such as
providing audited financial statements, further makes the option of becoming a public company unaffordable to many entrepreneurs.
“The draft rules would lessen, though not eliminate some of these requirements, most notably the requirement to file a prospectus with the commission.”
She continued, “The commission is also aware that certain entrepreneurs will want to raise more than $1 million; to this end the rules would allow them to raise up to $3 million in the capital market and will define, for the first time in the Bahamian context, what a small and medium-sized enterprise (SME) is,” she said.
Rolle added that the commission believes the rules would ultimately have “tangible, positive, effects on entrepreneurs and the Bahamian economy”.
“The commission hopes that the rules would spur economic growth and job creation in The Bahamas.
“It is our hope that these new rules will bring forth innovation, creativity, development and job growth into the Bahamian economy.”
Since the 2008 financial crisis, banks across the globe have clamped down on lending, making it harder for prospective entrepreneurs or small bossiness to gain access to capital.
“Crowdfunding will afford the entrepreneur the opportunity to access funds from a large group of people on more favorable terms than can be entertained by commercial banks,” Rolle said.
“As most of the entrepreneurs are aware, the cost of borrowing from banks can be excessive, especially in this post-2008 economy, particularly due to Basel III and other capital requirements. This has universally caused banks to become more conservative with lending, particularly with businesses that they deem to be of great risk.
“This conservative philosophy of lending has on all accounts led to many ideas not progressing to a tangible business.
“Via the proposed rules, entrepreneurs will be able to directly access the public and allow them to view the merit of a particular business idea and decide whether the idea is worth committing funds to.”
She added: “These rules will not take the crown out of crown funding. All Bahamian investors, whether non-accredited or accredited, will be allowed to participate in both crowd funding and SME offerings.
“Though it must be noted that the rules will ensure that retail investors are sufficiently protected and project initiators are required to disclose certain basic information about the offering that will allow an investor to make an informed decision.”