Something has gone wrong with small business in America. For the first time since statistics were kept, the rate of business failure now exceeds the rate of business creation. It isn’t that businesses are failing more often than usual; rather, new business creation has slowed markedly and the rate continues to slow further.

Though this worrying trend has several causes, one major cause is clear: small businesses are having a much harder time borrowing from banks. Thanks in part to the regulatory environment, small businesses lending is not sufficiently profitable to interest major banks. Small Business Administration loan programs can take up some of the slack, but not enough.

At the same time, Main Street investors who might like to provide funding for small businesses face many obstacles. Unless you are an Accredited Investor (basically, a millionaire), the only way you can participate in conventional venture-capital investing is if you are a friend or family member of the business owner. Even if you can somehow invest in a startup, thanks to existing securities regulations, you generally can’t sell your investment for years, if ever. As a result, venture capital is simply not available to or appropriate for the vast majority of investors or the vast majority of small businesses.

The Securities and Exchange Commission has taken some steps to make it easier for small businesses to raise money, but again, not enough. The new Regulation A+, which became effective on June 19, allows companies to more easily issue up to $50 million in securities without going through public registration and a costly initial public offering. Unfortunately, such securities issues still require audited financial statements and many months of scrutiny from SEC or state regulators, a process too cumbersome and expensive for most small businesses to afford.

More promising changes have been going on at the state level, where dozens of states now have simplified rules for “crowdfunding” securities issues of up to $1 million. But volume on state crowdfunding portals is still low and Main Street investors have a hard time investing in state-regulated securities. Most of their investing is done through 401(k) accounts, which require that investments be publicly registered on the federal level through the SEC.

In short, our present financial system is starving small businesses of capital at the same time as it denies opportunities to average investors. At a time of economic sluggishness, such perverse regulatory outcomes cry out for reform.

Fortunately, there is a way to kill two birds with one stone: change federal labor regulations to allow 401(k) participants to invest a small portion of their funds (perhaps up to 10 percent) in state-registered securities in their state, provided the securities have a liquid secondary market and meet other standards of prudence.

Using 401(k) accounts to experiment with new forms of investing adds layers of safety for the individual. A 401(k) only provides investment options that are selected by the plan sponsor, who is required to meet fiduciary standards of prudence. Investment vehicles would have to be developed by money managers and new analytical resources put in place to screen state-level investments. Even if the proposed rule change were made tomorrow, it would be a long time before a single dollar of 401(k) money hit the crowdfunding markets.

Still, the effects of such a rule change would be profound. Spurred by the potential of billions of dollars in new investment, state regulators and crowdfunding platforms would work hard to improve their marketplaces to make them safer for investors, and easier to use for professional management companies. Even before retirement accounts start funding small businesses directly, the improvements in state-level markets would directly benefit small businesses across America, and small investors too.

With our era’s tremendous advances in Internet communication, the biggest obstacles to small business finance are now outdated regulations. With a small regulatory fix, we can make America’s investing world more democratic, and our small businesses much stronger.