SEC loosens crowdfunding regs so small businesses can raise alternative financing in pandemic

Jonathan Shieber
A view of the Securities and Exchange Commission headquarters May 3, 2013 in Washington, DC. AFP PHOTO/Brendan SMIALOWSKI (Photo credit should read BRENDAN SMIALOWSKI/AFP/Getty Images)

Just like American workers are turning to crowdfunding to pay for the medical procedures that can keep them alive, the Securities and Exchange Commission is telling small businesses that everyday citizens may provide them with the lifeline that the U.S. government won't.

After two multi-billion dollar stimulus packages which have largely failed to reach the small businesses they were ostensibly intended to support, the SEC said that it will lift restrictions related to reporting requirements and accelerate the approval of crowdfunding listings so that main street businesses and small startups can try to raise funds from speculative investors who may have cash on hand.

To be eligible for crowdfunding a company needs to provide clear disclosure to investors about the fact that it's using the money to support itself and pay COVID-related expenses, according to the SEC's statement.

"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, in a statement. "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."

According to the statement, the temporary rules provide flexibility for would-be fundraisers to determine whether they're interested in pursuing crowdfunding and exempts issuers seeking between $107,000 and $250,000 from financial statement review requirements. The temporary relaxation of the rules would expire at the end of August.