Maryland residents now have the opportunity to invest funds directly in small local Maryland businesses and earn a return.
This is important because locally owned businesses are both job engines and sources of wealth creation and economic health. Local businesses pay local taxes, are more likely to hire local employees, and are more committed to providing financial and other support to the community. It can, however, be very difficult for new and small businesses to get capital: either they don’t have collateral, they lack a well-established financial history, or the amount they need is below the threshold that makes the loan worthwhile for commercial banks.
Here’s the good news: There’s a new law that gives Maryland businesses access to other sources of capital.
In 2014, the Maryland General assembly passed groundbreaking legislation that allows small businesses and micro-enterprises to raise debt capital from Maryland residents. Businesses based in in Maryland—registered in the state and doing more than 80% of their business in Maryland—can borrow up to $100,000 from individuals who are residents of Maryland. Each individual can lend the business up to $100 via a “Note” that the business issues. Businesses will be able to set the terms of the loan, including the interest rate and the date of repayment.
County Report story on Localvesting from 2014:
The law allows micro and small businesses to access community capital. It also enables community members to provide financial support to businesses they care about AND use this funding as an investment. Ideally this new platform will allow new kinds of businesses—including green and sustainable businesses—to get a foothold, while encouraging people who might not think of themselves as “investors” to participate.
It is important to note that the loans are not guaranteed or vetted by the state of Maryland or any other body, so the investors absorb all the risk of the investment.
Want to learn more? Here’s a website with resources explaining the law and tools for setting up your own crowd-funded loan: www.tpsslocalvesting.org. If you want to talk to a human being, contact Franca Brilliant (301-873-0402) or Lorig Charkoudian (410-227-4941) or send email to email@example.com.
Live local, buy local, invest local!
By Franca Brilliant, Senior Manager of Development, CASA. Franca is also a member of TPSS local investment committee