The Jumpstart Our Business Act, otherwise known as the JOBS Act, was passed in April 2012, and is designed to help businesses access capital with more ease. Further, the JOBS Act decreases restrictions for private companies who want to go public, and it helps businesses obtain money from investors.
Although the new JOBS act allows companies to go public more easily, they often still depend on traditional forms of gaining capital. In a study by Pepperdine University’s Graziadio School of Business and Management, researchers discovered that 68 percent of people needing funds in the next six months would seek a bank loan, while 40 percent would use a business credit card and 36 percent will use a credit union or a Community Development Financial Institutions Fund.
However, Pepperdine Private Capital Markets Project and Dun and Bradstreet Credibility Corp. surveyed about 6,000 people and revealed that 67 percent of participants that were unable to secure bank loans still believed that bank loans would be a good way of accessing funds for their companies.
The study also displayed that 37 percent of people surveyed tried to gain funds through bank loans, while 40 percent of all people surveyed were successful in gaining capital.
So, why after the new JOBS Act, are businesses still using bank loans and credit cards to access capital?
Jeff Stibel, CEO of Dun and Bradstreet Credibility Corp., noted, “At first glance, businesses do not seem to be making different decisions based on the new policies. This may be due in part to the fact that the government needs to better educate businesses about the benefits that stem from the JOBS Act.”
Another reason why businesses are not taking advantage of new ways to access capital from the JOBS act may be because they are relying on means that they already know and understand. Companies often use old ways of gaining capital that they they are comfortable with, even though these methods may not be the best or most successful.
Crowdfunding is another way the JOBS Act will help businesses access capital. However, not all businesses will qualify for crowdfunding, and some companies worry that investors on crowdfunding websites will not follow through with their pledges.
Other businesses are skeptical about how the JOBS Act will play out. There is concern that unqualified companies could go public because of the decreased restrictions to do so. Also, private companies who plan on going public will be allowed to have private conversations with the SEC about planned disclosures, which worries investors who normally depend on the process being clear and exposed.
Overall, the JOBS Act is in place to provide companies with more capital, and decrease restrictions for private companies who want to go public. Businesses should educate themselves on how they can take advantage of the new JOBS Act and gain capital to expand their businesses.
What are your thoughts on the actions set in motion?