Small businesses are essential to the economic well-being of a country, but unfortunately, many find it challenging to obtain the capital they need. It is expensive to access the public capital markets at the best of times, but in times of economic hardship and uncertainty, traditional financing options become especially scarce as well. Fortunately, private capital markets have emerged as a viable and advantageous solution for small businesses to raise the funds they need to grow, sustain jobs, and contribute to their communities.
Raising Capital is Expensive
Small businesses are often faced with tedious and expensive processes when trying to access traditional capital sources. Raising capital for companies when going public compared to private can be expensive and complicated. The costs associated with this type of fund-raising include:
- Underwriting fees
- Exchange listing fees to launch on the stock exchange or other public markets
- Professional fees for attorneys, accountants, and other financial advisors
- Printing and distribution costs for prospectus and registration statements
- Costs associated with filing regulatory paperwork such as the SEC Form S-1
These costs can add up, and the process of going public is also typically long and complicated, requiring a great deal of time and energy from company founders. In addition, many banks impose strict guidelines limiting the amount of capital small business owners can borrow, and it might not be enough to cover the cost of going public. For small startups especially, the possibility of going public may be decades away, if it exists at all. For organizations that need to raise capital more immediately, the private market is a much more viable option than raising capital publicly.
The Solution: Private Capital Markets
Fortunately, private capital markets provide a viable solution for small businesses during tough economic times. With private businesses able to use JOBS Act regulations like RegA+, RegD, and RegCF to raise millions in capital from accredited and nonaccredited investors, they need not rely on traditional lenders. The cost of raising capital privately using JOBS Act regulations compared to taking a company public is significantly lower. This is because:
- Although there are still securities regulations to protect investors, the reporting requirements are much lower and less costly.
- Private capital markets avoid the lengthy legal process involved in taking a company public, thereby saving time and legal fees.
- Private capital markets offer more flexibility than traditional financing sources, allowing businesses to craft more creative and advantageous terms for the capital they need.
This makes it easier for small businesses to access the funds they need without having to worry about high costs and long wait times. Furthermore, leveraging private capital markets provides an opportunity for small business owners to cultivate relationships with investors who can provide valuable insights and advice that they may not be able to access through traditional lenders. And that can open more doors.