January 20, 2026 1:46PM # How Securities Regulation Is Holding Back the Smallest Businesses, and How to Fix It By [Christian Kruse](https://www.cato.org/people/christian-kruse) and [Norbert J. Michel](https://www.cato.org/people/norbert-michel) --- SHARE Listen to this article Generated with [ ElevenLabs](https://elevenlabs.io/) AI technology. Loading the [Elevenlabs Text to Speech](https://elevenlabs.io/text-to-speech) AudioNative Player... ![Securities and exchange commission - SEC](/sites/cato.org/files/styles/pubs_2x/public/2024-03/GettyImages-513676272.jpg?itok=xBmZI1eQ) Today marks the publication of a new Cato report: [*The Case for Micro-Offerings*.](https://www.cato.org/briefing-paper/case-micro-offerings-commonsense-exemption-americas-smallest-businesses) The report recommends creating a micro-offering exemption—an exemption from certain securities regulations that would allow businesses to raise a small amount of capital without complex filings or costly compliance requirements. Existing exemptions [provide](https://www.sec.gov/files/2024-ospb-overview-capital-raising-exemptions-table-2.pdf) regulatory relief to businesses by allowing them to offer securities outside of a public offering, such as ones on the New York Stock Exchange. However, the smallest businesses are still overburdened with compliance costs, even when raising money through these exemptions. Our report documents these challenges and recommends a new exemption—a micro-offering exemption—to alleviate costs for the smallest businesses. This exemption would help lower regulatory costs for issuers while the low offering cap limits both the incidence and potential impact of fraud against investors. Prior to 2020, there were only [16 cases](https://www.sec.gov/files/misconduct-and-fraud-unregistered-offerings.pdf) of fraud in all exempt offerings, and since 2025, [only one](https://www.sec.gov/newsroom/press-releases/2021-182) crowdfunding fraud case. While disclosure requirements that force issuers to show financial data may be useful in larger, more complex offerings, they do not reduce fraud cases in small offerings. And it turns out that more financial disclosure doesn’t help investors make better decisions in smaller offerings. In fact, many of the smallest businesses don’t yet have a rich financial history to disclose, so potential investors tend to judge the newest business’s value based on its [“story”](///C:/Users/ChristianKruse/AppData/Local/Microsoft/Olk/Attachments/ooa-fcc71116-4938-40e0-9afe-2275f415ac43/0f529da71075bf63f3a2842159463bf0d496725ea8f91281b3c7aa52b075d4c3/publications.aaahq.org/jfr/article-abstract/8/2/25/11268/Equity-Crowdfunding-and-Offering-Page-Disclosure) rather than its balance sheet. And more investors mean more engagement for the smallest issuers, who, under the current framework, can be subject to regulatory costs reaching 4.2 percent of what they raise, contributing to overall costs nearing or even [exceeding](https://www.sec.gov/files/dera-reg-cf-2505.pdf#page=22) 10 percent of the funds they raise. If Congress wants to truly allow small businesses to flourish, it should pass legislation that establishes a micro-offering exemption. Ideally, as our report explains, the exemption would ensure that issuers can reach any willing investor regardless of a prior relationship, that state Blue Sky laws are preempted, and that no limits are placed on the number of investors or how much they may invest. Correctly applying these standards would give businesses previously shut out from the markets more access to investor capital while broadening investment opportunities for investors. You can find the full report [here](https://www.cato.org/briefing-paper/case-micro-offerings-commonsense-exemption-americas-smallest-businesses). ##### Related Tags [Regulation](https://www.cato.org/regulatory-studies) [![Creative Commons License](/build/cato_2020/images/creative-commons.svg)](http://creativecommons.org/licenses/by-nc-sa/4.0/) This work is licensed under a [Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License](https://creativecommons.org/licenses/by-nc-sa/4.0/).