SEC Gives Break on Crowdfunding Rules for Some Small Firms

SEC Chairman Jay Clayton said in a Monday statement that "many established small businesses are facing challenges accessing urgently needed capital in a timely and cost-effective manner. Today's action responds to feedback we have received from our Small Business Capital Formation Advisory Committee and others about the difficulties these companies may face in conducting an offering within a time frame that meets pressing capital needs, while continuing to provide appropriate protections for investors."

A securities offering under Regulation Crowdfunding, the SEC stated, "may be an attractive fundraising option for some small businesses at this time, particularly as a means of allowing an issuer to make use of the internet to reach out to its customers or members of its local community as potential investors as well as to existing investors."

However, the commission stated that it "understands that certain Regulation Crowdfunding requirements may make it difficult for an issuer affected by COVID-19 to launch an offering and see it to completion within a time frame that meets its urgent capital needs."

The temporary rules provide flexibility for issuers who meet certain eligibility criteria to assess interest in a Regulation Crowdfunding offering prior to preparation of full offering materials,  and then once launched, to close such an offering and have access to funds sooner than would be possible in the absence of the temporary relief.

The temporary rules also provide an exemption from certain financial statement review requirements for issuers offering $250,000 or less in reliance on Regulation Crowdfunding within a 12-month period.