Finance 101

Small Investors, Like You, Can Make a Big Difference to Growing Small Businesses

By Team Worthy | 3min read | Published on March 22nd

Summary: You may not have much to invest but, now, every little bit can count. Relatively new legislation means small investors can ensure that small businesses have the money they need to grow.

Access to capital is critical for small businesses, yet sources of capital are limited. Banks prefer to lend to large companies because those loans are more profitable than ones made to small businesses. This is bad news for the economy as small businesses create jobs, increase innovation, and improve productivity. 

Now, thanks to updated rules by the Security and Exchange Commission (“SEC”), individual, retail investors can help fill the capital needs of small businesses while getting in early on the growth of young companies.

Opening this door wasn't easy because, in some cases, it required legislation. In the wake of the financial crisis, a group of entrepreneurs created a new category of financing — called crowdfunding — to meet the financing needs of entrepreneurial ventures. At first, they generated capital using online platforms such as Indiegogo and Kickstarter to have family, friends and fans provide money in exchange for an early version of their products. From this grew investment-based crowd funding through which backers could actually earn a financial return and build their nest eggs while supporting Main Street businesses.

This was made possible through the Jumpstart Our Business Startups (JOBS) Act, which gives businesses and startups more ways to raise money. It also allows more investors to participate in the success of growing companies.

Before the JOBS Act, if you weren't wealthy, you couldn't participate in private markets. You were limited to the public markets — investments that traded on the stock exchanges. After the Great Depression, to protect you, the 1933 Securities Act banned advertising investment opportunities by private companies to the general public. The law was intended to reduce fraud among inexperienced investors, but it had the unintended consequence of limiting fundraising opportunities for worthy small business owners and entrepreneurs. 

With overwhelming bipartisan support, the JOBS Act was signed into law on April 4, 2012. It required the SEC to write new fundraising rules that took the form of titles. Titles II, III, and IV of the Act allow small business owners and entrepreneurs to raise money more easily from the general public.

  • Title II — Rule 506 of Regulation D enables companies to raise money more easily from wealthy investors. When it went into effect on September 23, 2013, Title II became the first option to allow companies to raise money from accredited investors more easily via crowdfunding platforms as it lifted some restrictions on public advertising.
  • Title III — Regulation Crowdfunding (“Reg CF”) enables companies to raise just over $1 million per year from both retail (everyday Americans) and accredited (wealthy) investors. Enacted on May 30, 2016, it allows companies to raise $1,070,000 over 12 months. There are restrictions on how much retail investors can invest based on their income.
  • Title IV — Regulation A+ (“Reg A+”) enables companies (also called issuers) to raise up to $50 million over 12 months from both retail and accredited investors, provided that the offering is qualified by the SEC.

The SEC has proposed changes to simplify and improve the JOBS Act. This isn't surprising, considering that, in 2019, Reg A+ alone raised over $1 billion in funding. One of the SEC recommendations recently implemented was to increase the Reg A+ cap of $50 million to a threshold of $75 million per year. 

Worthy Bonds is one of the ventures that is successfully using Reg A+ to fuel its mission. Proceeds from its SEC-qualified bonds provide asset-backed loans to growing community businesses throughout the U.S. It has already sold more than $130 million in bonds. Interestingly, it took the first six months of Worthy's life to reach the million-dollar sales milestone, but now Worthy sells more than twice that amount every week. 

Investing in bonds is an alternative to putting your money in stocks or low-interest savings accounts. Worthy Bonds provide a solid return of 5% interest per year. The loans in which they invest the bond proceeds have a lower risk profile than traditional loans because they are secured assets which have a greater value than the loan amount. You can invest as little as $10 and withdraw money without fees and penalties. 

All those little investments add up to more capital for the small, local businesses that give communities their unique character. Small businesses will recover and grow as fast as their larger counterparts coming out of this recession – with your help.

Team Worthy

We've assembled a Worthy team of some of the brightest and boldest minds with big hearts to match. Every day we show up committed to our mission of creating a more fair and equitable financial playing field for all.