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As a concept, the idea of funding a small business through small, local investors is nothing new to credit unions. In fact, it could be argued that in a broad sense a credit union is the original crowdfunding business model.
Here are some reasons why some credit unions should be interested in this market.
As a concept, the idea of funding a small business through small, local investors is nothing new to credit unions. In fact, it could be argued that in a broad sense a credit union is the original crowdfunding business model.
Here are some reasons why some credit unions should be interested in this market.
As a concept, the idea of funding a small business through small, local investors is nothing new to credit unions. In fact, it could be argued that in a broad sense a credit union is the original crowdfunding business model.
Here are some reasons why some credit unions should be interested in this market.
The SECs adoption of final rules regarding regulation
crowdfunding signals that credit unions now have an opportunity to connect members with entrepreneurs who seek early stage capital. Credit unions can now help investors and businesses find each other. As a concept, the idea of funding a small business through small, local investors is nothing new to credit unions. In fact, it could be argued that in a broad sense a credit union is the original crowdfunding business model. Here are some reasons why some credit unions should be interested in this market: Crowdfunding platforms can help credit unions execute on their goal of helping small businesses in their communities. Crowdfunding will get the attention of younger customers. Young people are already familiar with the crowdfunding models such as Kickstarter and Crowdfundingbank.com. If their local credit union is sympathetic to the idea, younger members and younger prospective members will take note. Crowdfunding fits the credit union brand. Credit unions are member-owned. Similarly, small businesses using crowdfunding will create dozens of individual shareholders with a stake in the business. Crowdfunding will build on and support a credit union's community-based, member-driven brand. How could this work? The credit union could put a link on a website where members see a list of businesses looking for capital. The list would be sortable by location, funding level, industry sector, and the owners business histories. If members are interested in investing in a company, they could arrange to
transfer money directly from their accounts into an escrow
account. Businesses would have to meet stipulated capital-raising objectives before deal could close. If an entrepreneur wants to raise, say, $50,000 in 3 months, and only $25,000 comes in, for example, everyone gets their money back. The deal ends of its own accord. The credit union does not hold stakes in the companies; it simply introduces the parties. How would the credit union make money? Companies could pay a one-time setup fee of $5,000 or $7,500, plus a 3% origination fee, for instance. For deals that fund, the credit union could receive, say, 10% of the origination fee. Even if crowdfunding is not very profitable, it could create valuable reputational capital. Judging by recent industry reports, though, it could be profitable. Crowdfunding is growing rapidly around the world, raising $16.2 billion in 2014. That is a 167% increase over 2013, when $6.1 billion was raised, according to Crowdsourcing.org, which expects investments to double in 2015 to $34.4 billion. Title III of the JOBS Act lifted an 80-year rule prohibiting early stage capital from mainstream investors. Until now, early stage investments were deemed too risky for anyone other than high net-worth investors. For more information, connect with Douglas Slain @ LinkedIn: http://linkedin.com/in/douglasslain Twitter: https://twitter.com/exemptofferings Crowdfunding platforms: http://www.sanfranciscofunding.com Blog: http://www.privateplacementadvisors.com/apps/blog Email: dslain@privateplacementadvisors.com