The Security Exchange Commission (SEC) recently announced that it plans to loosen regulations surrounding crowdfunding for smaller companies amidst the global pandemic of COVID-19. This temporary, conditional relief will allow small business owners to receive funds to cover COVID-related expenses through regulation Crowdfunding with fewer requirements and restrictions. The offering processes will be expedited, reporting requirements will be loosened, and approval proceedings will be sped up to accommodate the urgent need for funds that many entrepreneurs are facing.
According to CPA Practice Advisor, to qualify, small businesses must meet enhanced eligibility requirements and clearly disclose the fact that they are using the money obtained from investors to support themselves and pay COVID-related expenses. Tech Crunch reports that the SEC’s statement clarifies that issuers seeking between $107,000 and $250,000 would be exempt from financial statement review requirements. The loosening of these regulations surrounding crowdfunding for small businesses is expected to last until the end of August 2020.
Some have criticized this move as a poor attempt to provide relief to small businesses, who have been left largely unsatisfied with the stimulus packages passed in response to the Coronavirus crisis. These packages, which included the Payroll Protection Program loans, have been accused of misappropriating funds to larger companies and have been plagued with technical difficulties and lost paperwork. To some, the new crowdfunding regulations, which encourage businesses to rely on private citizens for help to stay afloat during the pandemic rather than receiving government assistance, seem to be too little too late.
Still, the SEC maintains that it is aware that “in the current environment, many established small businesses are facing challenges accessing urgently needed capital in a timely and cost-effective manner.” Chairman Jay Clayton stated that the SEC wishes to respond to “the 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.”
Overall, for businesses struggling with economic closures and restrictions brought on by Coronavirus, this act could provide expedited financial relief by allowing community members to assist with funding for many companies. The SEC’s website provides additional information about it’s response to the pandemic and invites questions and comments from financial professionals and firms affected by the crisis.
