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An alternative to CARES Act relief? SEC issues temporary crowdfunding rules amendment

On May 4, 2020, the U.S. Securities and Exchange Commission (SEC) announced a temporary final rule amending certain rules that apply to securities offerings initiated under Regulation Crowdfunding between May 4, 2020 and August 31, 2020. The temporary amendment is intended to expedite the offering process for smaller companies with at least six months of operating history that are seeking to meet their funding needs (ostensibly caused directly or indirectly by COVID-19) through the offer and sale of securities pursuant to Regulation Crowdfunding. By far the biggest change arising from the amendment is that companies may omit financial statements with their initial offering statements and for offerings of more than $107,000 but not more than $250,000, CPA-certified financials are no longer required Now, for all offerings under $250,000 companies may merely provide executive-certified financial statements like for offerings of less than $107,000.

The press release announcing the amendment, along with a chart explaining all of the amendments to the rule surrounding Regulation Crowdfunding may be found here, and the full text of the amendments is available here.

As CARES Act relief funding dries up once again, a sale of securities through a Regulation Crowdfunding-compliant funding portal might be the difference between survival and failure for many smaller businesses during this unprecedented time. It’s also worth noting that the vast majority of crowdfunded offerings are equity offerings. Unlike the debt-focused relief available under the CARES Act, equity offerings mean companies would not have a loan to pay back in the future after receiving the proceeds from their offerings. Beyond being a CARES Act alternative to fund operations to weather the COVID-19 pandemic, it’s also possible that a company could use a portion of this first round of crowdfunded financing to begin work on a larger capital raise selling its equity securities, such as one conducted under Regulation A or even a full-blown IPO.


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