A Plan to Help Small Businesses… That Doesn’t
There’s a new proposal at the State House designed to help small businesses by encouraging Rhode Islanders to invest in them.
On the surface, it sounds like a smart idea.
✅ Offer a tax credit.
✅ Encourage local investment.
✅ Support local businesses.
But when you look at how it actually works, it raises a more important question: will it really help the businesses it’s meant to support?
Here’s why I’m concerned.
The businesses that qualify don’t typically raise equity, and the businesses that raise equity don’t qualify.
Let’s get into it.
The basic idea
Under bills 2026-S 2833 and 2026-H 8195, a Rhode Island taxpayer can receive a tax credit equal to 50% of an investment in a qualified local business.
The maximum credit is $3,000 per year.
That means the most anyone can invest and still receive the full benefit is $6,000.
After that, there’s no additional incentive to invest more.
What the sponsors are trying to do
Their goal is straightforward:
encourage Rhode Islanders to invest locally
help small businesses access capital
strengthen Main Street economies
It’s a message that resonates.
Small businesses are the backbone of our communities, and encouraging local investment is a goal most people would support.
The question is whether this approach actually works in the real world.
Sounds simple. It’s not.
To access that investment, a business must:
take on equity investors
define what the business is worth
issue ownership shares
generate at least 80% of its revenue in Rhode Island
keep at least 80% of its assets in Rhode Island
have the majority of employees working in Rhode Island
go through a certification process with the Rhode Island Commerce Corporation
In other words, this isn’t a grant or a loan.
It’s a mini venture-style transaction with strict geographic limits that many growing businesses won’t meet.
Who actually qualifies?
Based on the criteria, this program is really geared toward businesses that are almost entirely local where customers, employees, and operations are all concentrated in Rhode Island.
That likely includes businesses like:
a local pizza shop or restaurant
a landscaping or home services company
a small construction or contracting business
a neighborhood retail store with mostly in-state customers
a local gym or fitness studio
a salon or barber shop
These are all important businesses. They’re part of what makes a community work.
Who doesn’t?
Now look at how most businesses operate today.
Many have aspirations to grow nationally or beyond.
This program likely does not apply to:
most Shopify or e-commerce stores selling nationwide
direct-to-consumer brands shipping across the country
businesses selling through national retailers
wholesale brands working with boutiques outside Rhode Island
online service businesses with clients in multiple states
In truth, if your business is built to grow beyond Rhode Island, there’s a good chance you don’t qualify.
Why this matters
This creates a real tension.
The businesses that qualify are typically:
local
service-based
and less likely to raise equity in the first place
The businesses that don’t qualify are often:
scalable
growth-oriented
and more likely to seek outside investment
Let’s make it real
So what does this actually look like in practice?
Let’s walk through a potential investment. Let’s call it Joe’s Pizza.
Joe runs a local pizza shop. He wants to raise $60,000 to upgrade his kitchen.
To use this program:
he needs around 10 investors at $6,000 each
each investor gets a tax credit of $3,000 to offset their Rhode Island taxes
Joe gives up small pieces of ownership
But that’s just the beginning.
Now Joe has to:
hire a lawyer to structure the deal
bring in an accountant to track ownership
issue annual K-1s to investors, which means ongoing accounting costs year after year
manage multiple outside stakeholders
And those costs don’t go away.
They show up every year.
Final Thought
At the end of the day, the intention is good, and the goal is one most people agree with: support small businesses and keep investment local.
But good intentions aren’t enough.
If a program is too narrow, too complex, and too disconnected from how businesses actually operate, it won’t get used.
And if it doesn’t get used, it doesn’t help.
If we’re serious about supporting small businesses in Rhode Island, we should focus on making it easier to start, operate, and grow, not harder.
