Turpin & Associates, LLC

On August 7, 2012 - I Wrote and Sent This Article To Kansas Senators Moran and Roberts: Asking to Support H.R. 2930: Entreprenurial Access to Captial Act

Re. H.R. 2930 Entrepreneurial Access to Capital Act

Dear Senator,

I am writing this letter to encourage you to aggressively pursue the passage of H.R. 2930: Entrepreneur Access to Capital Act.  I believe this bill would immediately spur the economy.  It would do this in three major ways and cause many positive ripples of benefits following its enactment.

First, small-to-medium-sized businesses would have access to a source of capital that is currently not available.  I believe H.R. 2930 would provide a substantial cash injection to start-ups and successful existing businesses for expansion. This will allow the creation of additional business income for small business owners and jobs for the unemployed.  The direct results are both a healthier consumer (both businesses and individuals) and additional tax revenues thus resulting in a healthier government.

Financing for small businesses is often costly and can be very risky.  It often comes in the form of short-term, adjustable rate, or balloon mortgages.  All of this assumes the borrower can even surpass the rigorous underwriting requirements of modern traditional banks.  Although financing can be overall beneficial for a company, small businesses who have the access to capital in the form of cash can avoid the costs of leverage.  These costs include not only the obvious closing costs, but also the interest rate risk of having to pay interest regardless of the overall health of the company.   Then there is the risk of loan default which is most often avoided by taking drastic measures such as reducing workforce and cutting spending, both toxic to a healthy economy.  It is common knowledge that the end return for the investor (or on the investment dollar) is better if you are not required to pay interest to a bank.  Additionally businesses are more likely to remain in business for the long haul if they can afford to weather the storm if business is bad and reward investors when times are good.  This can better be accomplished with equity than debt.

Under current legislation small businesses are prohibited from soliciting investments from investors unless they are publicly traded.  Meeting the requirements to do this is unfairly restrictive to small businesses.  H.R. 2930, how it is written, will allow small businesses to obtain capital that is affordable and flexible.  This allows them to focus on the work at hand, which is to build their business, create jobs, and fuel the economy.

Second, small individual investors would have the ability to invest in non-publicly traded investments which are now out of reach.  Right now, the “big boys” always get first crack at IPO’s and benefit from information and data which may not be available or transparent to the individual investor.  These large investment banks then pass those investments off to brokerages that in turn pass them off to individual investors.  There are multiple steps, fees, and a substantial amount of red tape involved which strip money from only one person in the end…the individual investor.

Additionally, individual investors are virtually forced to invest in companies in which they have no familiarity.  Brokerages push certain stocks or investment vehicles which are available because they have gone through the costly rigmarole of going public, or because of the financial benefit that brokerage house may receive for selling that particular investment. 

More risky investments such as start-ups and rapidly expanding businesses that are publicly traded are typically only available to larger investors.  These investments can be risky for the small investor as they have no ability to judge the feasibility of the investment or the actual strength of the underlying company in a real life setting. 

By allowing individual investors to “invest in their own back yard,” you are allowing the average consumer to place his or her investment dollar where they can see it working for them.  

Under current legislation, most individual investors are not even given the chance to be offered these opportunities.

Imagine this:  The average consumer has an opportunity to be actively notified of quality small business opportunities in his community (or any community they so choose).  This may included the neighborhood auto mechanic, tanning salon, doggy daycare, or widget machine shop they are familiar with.  Perhaps it is an expanding business with a brick and mortar location they have used for years and have gotten to know.  Perhaps it is an idea for a service needed within the community.  These individual investors will then be afforded the opportunity to witness it operate first hand, and make educated investment decisions based on what is happening in right in front of their eyes.  Money can be pooled and commerce can be brought to life. Under H.R. 2930 these investors are given a fair opportunity to choose good investments themselves without the unnecessary costs associated with large publicly traded stocks.

Third, passage of H.R. 2930 will create new jobs in a new industry and more jobs in existing employment sectors.  The enactment of H.R. 2930 would create a need for new professional service providers in the form of intermediaries. Much like how the real estate and banking industries generate numerous jobs through the primary and ancillary services (i.e. agents, loan officers, appraisers, title companies, inspectors, attorneys, etc.), the new transactions created by intermediaries will also fuel multiple ancillary industries too (i.e. business valuations, appraisers, business brokers, attorneys, document preparation companies, etc.). 

The real estate industry, as well as other financial services industries, have recently experienced rough economic times resulting in an overall reduction in employment within those industries.  With so many qualified professionals looking for work, the production of more quality jobs and work for those professionals is imperative for economic recovery.  I believe this act will jumpstart many new and existing businesses and industries by creating jobs.  

One might argue that by passing this bill jobs and revenue for banks, investment bankers, or brokerages may be experienced.  I vehemently disagree.  I contend that the passage of this bill in no way interferes with the business of large investment bankers or brokerage houses since the investment criteria provided within this bill are clearly not investments which would qualify to be publicly listed. Nor would large firms be interested in such small deals.  Unfortunately, those jobs are already currently being replaced by technology and corporate downsizing at an alarming rate as it is. This can be witnessed by massive layoffs at several larger firms in recent years.  I believe the passage of this bill will allow some brokerage firms to create small business investment departments and allow banks many more opportunities to lend on projects which have, through the passage of this bill, raised enough equity to make a loan work for the banks underwriting criteria.

Crowd funding has been in use for quite some time and offers certain causes viable means with which to fulfill their missions.  Allowing small businesses to take advantage of crowd funding will allow them to birth, grow, and prosper while providing no substantial risk to investors.  Other nations such as Great Britain, Hong Kong, and the Netherlands currently offer equity-based crowd funding opportunities to investors and startups in order to spur capital formation and have experienced success in doing so.

It is true the passage of H.R. 2930 will result in more taxable income from businesses and individual investors, and more tax dollars going into the government.  However, there will also be more income to be taxed.  This is a good problem as end result will be net-positive for all parties involved.

As a small business owner, individual investor, and a consumer, I believe this bill helps level the playing field between the American people and the large financial institutions.  As a small business consultant, I am certain this bill will serve as a stepping stone for the overall recovery of the United States economy.  Although I believe this is but one step on a very high and ominous stairway, I do believe the only way to get to the top is one step at a time.   It is time to take a big step and vote for the passage of H.R. 2930 with minimal changes from its passage through the House.

Please feel free to contact me with any thoughts or comments.  I would also like to request to know the status or your opinions on the bill itself as they occur.  Please feel free to add my information to your newsletter.

Best regards,

 (signature)

Joshua D. Turpin

15375 Quivira Rd.

Overland Park, KS 66221

Ph. 913-907-4656

josh@turpinllc.com