May 6, 2020

SEC Provides Small Business Relief through Temporary Reg CF Changes

We all know that small businesses have been suffering due to the coronavirus pandemic, and many have turned to crowdfunding to help them survive. This week the SEC announced temporary changes that they are implementing to make this solution even easier for businesses. Let’s check out what those changes are and how they streamline the crowdfunding process.

 

Simpler Financials, Quicker Funds

The SEC’s goal with these changes is to make the crowdfunding process quicker so that businesses in need can stay afloat. To achieve that end they have lifted specific rules that govern what financial paperwork companies have to submit in order to begin a raise. For companies looking to raise between $107,000 and $250,000 in a 12 month period, they can submit financial statements that are certified by the principal executive officer of the company. The benefit here comes from not needing those financial statements to be reviewed by an independent accountant, a process which is both time and money consuming. 

The changes also make it easier for businesses to close their raises early and to access the funds they receive. To balance out these eased restrictions, the SEC did add extra eligibility qualifications which must be met in order to operate under the temporary rules. In particular, companies must have been created and shown operations for longer than 6 months prior to the raise they are trying to start. The SEC also stated that a business must be upfront about “its reliance on the relief” to its investors. 

 

Crowdfunding Remains Strong

These rules are effective immediately and will last until Aug. 31, 2020. With these changes, the SEC is acknowledging the strong role that equity crowdfunding can play during this crisis. We expect many businesses will take advantage of the eased restrictions in the coming months.

The SEC has also proposed permanent changes to crowdfunding campaigns (Reg CF and others), and those changes are currently open to public comment. Read more about that here and be sure your voice is heard.


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