The Tribune

• Regulator to unveil crowdfunding rules

• Move branded ‘four to five years overdue’

• Awaiting ministerial, Law Reform sign-off

By NEIL HARTNELL and YOURI KEMP

Tribune Business Reporters

Plans to modernise capital-raising by small businesses were yesterday branded “a great game changer” for Bahamian entrepreneurs that is “four to five years overdue”.

Mark A Turnquest, a well-known small business consultant, told Tribune Business that the Securities Commission’s Securities Industry (Business Capital) Rules 2021, which are due for release by end-April and aim to make crowdfunding less bureaucratic and costly, will provide a major boost for innovative ventures that are perceived as too high risk by traditional lenders such as banks.

“This is a great game changer when it comes to small business financing options. It’s so limited in scope,” he said. “I’ve been an advocate for that for the past four to five years. There’s a significant amount of regulations and time lags, especially for technology businesses and those that are high potential but high risk.

“This is four to five years overdue. It’s a game changer when it comes to raising a higher amount of money where you have a high-risk enterprise that has great potential, but the risk of failure outweighs the potential in the short-term. That keeps a lot of financial institutions away from investing in high-risk entities. The perception of risk is too high, and profitability is uncertain, so they become risk averse.”

Mr Turnquest added that in COVID-19’s aftermath it was “of the utmost importance” that The Bahamas “capture the creative risk of entrepreneurs that come up with great ideas” given that traditional lending patterns and sources of capital have “gone out the window”.

Christina Rolle, the Securities Commission’s executive director, said the Securities Industry (Business Capital) Rules 2021 will be completed and released by the end of April.

She added: “There are certain requirements that are mandated by the Act. Anyone who wants to go to the public to raise capital, they must meet those requirements. We’ve drafted the rules and they are currently with the Law Reform (Commission) for sign off.

“Once they’ve been signed off by Law Reform, we will send it to the minister for his non-objection. So we’re within weeks away. By the end of April this should be all wrapped up.” 

Ms Rolle explained: “What these business capital rules will do is they will relax those requirements for small and medium-sized enterprises, so that it can be easier for them to go to the public to raise capital.

“Now they will be able to do that via a crowd fund platform, or via a broker in certain circumstances. SMEs will be able to raise up to $5m in the public via a relaxed set of rules. The requirements for audited financial statements will no longer be there for up to $5m for SMEs.”

The release of the rules was foreshadowed by Kwasi Thompson, minister of state for finance, during his Senate mid-year Budget contribution. He added that the initiative will “modernise the rules for small businesses to raise capital. These rules make the process of raising crowd funding less costly and less bureaucratic for small businesses”.

He added: “Under the terms of these new proposed rules, businesses will be able to raise up to $5m via crowdfunding without having to file a prospectus with the [Securities] Commission. The shares created under this framework will be transferable and can be traded on the secondary market, such as BISX (the Bahamas International Securities Exchange).

“For too long, small businesses that wanted to offer shares in their company to raise capital had their hands tied by the bureaucracy. Not any more. With crowd sourcing provisions and other modifications to the regulatory regime, the ability for the small business to raise capital and sell shares will no longer be limited to the proverbial ‘big boys’ in the corporate world.

“We are bringing the capital markets within the reach of the Bahamian entrepreneur and small businesses. The new rules will provide protections as well for small businesses. For example, there will be limitations on the number of shares that an individual outside investor may hold, thus protecting the small business owner from hostile takeovers.”

Small businesses reacted positively to the move. Avery Anderson, owner/operator of the Royal Group of Companies, said: “I think it’d be a great idea. If it is for equity that would be a great idea for the business owner, and the people investing because they’ll be able to get additional income from their funds. So I think it’s a great idea. And I think it’d be a great thing to the small business community in The Bahamas.” 

Philip Darville, SolveIT Bahamas’ managing director, added: “I think once they put the regulatory framework in place to allow for crowd funding, you won’t need it to be done through BISX. You can raise capital privately.

“But without a prospectus, how can investors gauge their level of risk? If all of the contingencies are accounted for I think it’s an excellent opportunity to take The Bahamas global to allow for more international participation.” 

BISX had previously been exploring creating its own crowdfunding platform to bring companies and investors together. Keith Davies, its chief executive, yesterday welcomed the imminent release of the rules, and said: “It allows us to finally solidify the thinking and planning that has gone into creating the environment for crowd funding. We’ll see where that leads us.”