SEC Eases Crowdfunding Restrictions for Small Businesses

The Securities and Exchange Commission (SEC) announced today that it is temporarily easing up on reporting requirements for small businesses that use crowdfunding as a means for fundraising.

Small businesses looking to raise between $107,000 and $250,000 via crowdfunding are not subject to financial statement review requirements. The SEC also said it will fast-track the approval of crowdfunding listings.

The move is in response to small business’ need for funding to stay afloat while stay-at-home orders have diminished consumer demand– and therefore, revenue. While some were aided by the government’s stimulus package, the Paycheck Protection Plan, many small businesses either did not qualify for the funds or were not able to submit their application.

These small businesses may now more easily solicit the American people to help. “In the current environment, many established small businesses are facing challenges accessing urgently needed capital in a timely and cost-effective manner,” said SEC Chairman Jay Clayton. “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.”

To benefit, companies must disclose to investors that they are relying on the money because of COVID-19. Fundraisers must also meet eligibility requirements, including:

  • Must have been organized and operating for longer than six months prior to the start of the offering
  • Must be a U.S. business
  • Must not be a blank check or an investment company
  • Must have complied with Securities Act requirements in previous crowdfunding campaigns

The relaxed requirements will be in place until the end of August, so small businesses have just under four months to initiate their campaigns.