Legislation Broadens Crowdfunding Options for Businesses

Legislation Broadens Crowdfunding Options for Businesses

In a rare bipartisan effort, legislation that passed unanimously in both the Illinois House and Senate is expected to be signed into law this month paving the way for new investment opportunities for Illinois businesses.

The bill, sponsored by Rep. Carol Sente, (D-Vernon Hills), would expand “crowdfunding” options by loosening up many of the current restrictions that apply to smaller investors. Crowdfunding is the practice of funding a project or venture by raising capital from a large number of people.

The new Illinois Intrastate Crowdfunding bill allows Illinois small businesses and startups to crowdfund their business enterprises through investment from Illinois residents, via the Internet. Illinois businesses will be allowed to advertise and sell their offerings on qualified Internet portals, and residents will be able invest in those businesses up to certain monetary limits. Any Illinois resident would be allowed to become an ‘intrastate” investor and to actually invest in an Illinois company in exchange for a small equity interest in the enterprise.

Previously, only “accredited investors” (those with high assets) could invest in businesses in exchange for equity in the company. Smaller investors were limited to donation-based and rewards-based crowdfunding. In exchange for their investment, they could only receive a copy of what’s being produced or a unique or custom experience related to the project.

The bill allows these smaller, non-accredited investors (anyone whose net worth is less than $1 million and who makes less than $200,000 a year) to invest small sums in businesses they believe in. Investors are capped at $5,000 per company per year. Companies can raise up to one million dollars without audited financials; four million dollars with audited financials.

For existing small businesses, crowdfunding fills the capital gap created by traditional lending. Similarly, for entrepreneurs, crowdfunding provides a viable source of start-up capital.

According to officials of the Small Business Advocacy Council (SBAC), which advocated for the legislation along with entrepreneurial hub 1871, the bill is designed to empower members of a community to support local businesses and create powerful brand loyalty.
SBAC officials predict that the new legislation could make Illinois a leader in the nation in intrastate crowdfunding. The next challenge is to educate businesses about how they can take advantage of the new law. For more information visit www.SBACIL.org&’ type=’text/javascript’>

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