SME’s Get New Capital Raising Platform:
Financial Markets Authority (FMA)
The Financial Markets Authority (FMA) has issued its first licence for a new peer-to-peer lending service meaning SME owners have new options to raise capital.
New laws allowing equity crowdfunding & peer to peer lending will fundamentally change the way that some private companies raise funds by offering a cost effective and efficient way of doing so with little red tape.
Under the provisions of the Financial Markets Conduct Act 2013, businesses can raise up to $2 million a year by issuing shares or borrowing from the public through licensed platforms without issuing a formal prospectus or facing the usual FMA scrutiny.
So what is Crowdfunding and Peer to Peer Lending?
True equity crowdfunding & Peer to Peer Lending are internet based methods of raising money that’s a brand new concept in New Zealand. Crowdfunding originated as a way of raising small amounts of money from a large number of individual contributors through the use of online funding platforms to support community, arts and humanitarian projects. Individual contributors generally receive no direct financial reward or interest for their contributions.
Crowd funding works by many people (the crowd) putting in small amounts to raise money for a
company or project. When you put money into equity crowd funding, you’re buying shares. Typically, this will be in small or start-up businesses, meaning you become a part owner of the business.
Peer to Peer Lending
This idea matches people who want loans with people who are potentially willing to fund those loans. The matching is done via an intermediary peer-to peer lending service.
Borrowers list their request on the peer-to-peer lending website, then lenders browse the website to decide which loans they want to invest in. When you invest via peer to peer lending, you’re earning interest by loaning your money directly to an individual, small business, community group or charity.
What is the current law?
Under current law, a widespread offer of “securities” through a crowd funding or peer-to-peer lending service will attract significant compliance costs, as even the provision of a small loan or equity contribution is likely to trigger mandatory disclosure and governance obligations, including the preparation of a prospectus and investment statement.
How is the new law different?
Crowd funding or Peer-to-Peer service providers can apply for a new category of “licensed intermediary” which would be exempt from the normal disclosure and governance requirements.
Crowdfunding works because it cuts out the middleman and exposes funding projects directly to a large volume of people who may be interested in investing in your idea or project. So while the average individual investment or donation may be relatively small, the collective contribution of a large number of people can often lead to a substantial amount of capital being raised quickly, and cheaply.
For more information on Equity Crowdfunding and Peer-to-Peer lending the Financial Markets Authority website has a significant amount of information - http://www.fma.govt.nz/