SEC Changes Regulation CF, Regulation A+ & Regulation D

Capital Financing for Businesses & CRE Projects Just Got Easier

This landmark change provides an entirely new path forward for businesses seeking capital financing who also crave surety of outcome and control over their destiny.

What you need to know about the rule changes…

The final rule (SEC Release No. 33-10884) created a whole new path forward for small businesses, medium-sized businesses and commercial real estate developers to obtain capital financing in an essentially-similar method to that of an initial public offering (or “IPO”) but without necessarily having to spend the money and time it takes to launch a public offering.

SEC Final Rule Release No. 33-10884

Why is the IPO comparison important?

Of all of the paths to obtaining capital financing for businesses in America, the IPO offers the highest overall probability of success odds (on average, only about 1 in 5 IPOs fail to fully subscribe the offering and are subsequently withdrawn). The new rule change allows for the use of broadcast advertising, news releases, public relations, media events and pre-offering funding presentations (something IPOs don’t get to do).

Financing is about the numbers…

Crowdfunding probability odds of success for equity financing are similar to those of IPOs due to advertising opportunities
The odds are ever in your favor…

The imputed probability of success odds attending this approach on an integrated basis approach 1 in 1.47. Compared to commercial bank loans (1 in 8.74), SBA loans (1 in 5.55) or credit union loans (1 in 4.77), crowdfunding offerings are a gut-cinch.

What do the rule changes mean in terms of available financing and costs?

crowdfunding cost estimates for commercial real estate new construction financing and other business fundings

The rule changes primarily impact the amounts you can raise under the Rule 4(a)(6) exemption (commonly known as “Regulation CF” or “Regulation Crowdfunding“) and other sections of Regulation A (commonly known as “Regulation A+”).

5 Key Methods of Raising Non-Recourse Capital Financing & Equity

The end-result is the ability to undertake a public offering of up to $75 million of the securities of your choice – and you will be choosing equity securities! The change to the Regulation CF limit increased it to $5 million. This increase is the hidden gem in the entire 388-page final release.

Regulation CF New $5 Million Limit

The new $5 million limit is critical because there is no prior review of crowdfunding offerings – you simply file the forms and required disclosures and you can immediately launch the offering on a qualified intermediary platform.

Hidden Gem is Unbelievable Financial Investment Leverage for CRE Deals

Crowdfunding financial investment leverage using structured finance laddered offerings
The new relief provides the opportunity for insane levels of leverage…

The combination of no costly regulatory review delay (as is the case in Regulation A+ registration-exempt offerings) and the $5 million limit means the Regulation CF exemption can be used to raise a seed round of capital financing that includes funding to launch a much larger Regulation A+ offering of up to $75 million. In terms of financial investment leverage, this is positively unbeatable.

Regulation A+ Changes

The timing issues that made Regulation A+ offerings problematic are rendered potentially moot by the Regulation CF limit change…

The changes to Regulation A Tier I and Tier II registration exemptions are relatively minor – the focal point of interest being the increase of the funding limits to as much as $75 million. The requirement for prior review by SEC not being made any easier or regular in nature.

Tier I or Tier II filings have an indefinite review time and this is why the Tier I and Tier II registration exemptions were largely left unused as a result of the JOBS Act. With the increase of the crowdfunding limit to $5 million, this issue is no longer potentially the deal-killer that it used to be, as the $5 million crowdfunding may be utilized to jump start the Tier I or Tier II offering as the seed round. The value of this relief is incalculable.

The changes are definitely in favor of small businesses, medium-sized businesses and commercial real estate developers (and the final rule makes repeated note of the intention to provide a pathway for these market participants). In the end, the changes will mean more regulatory filing changes, but this comes with some pretty big carrots for those who take the time to compute the odds, then organize and execute a professional offering approach that integrates all of the available tools.

May the odds be ever in your favor.

Fundamental changes that fundamentally change the way capital financing may be obtained.

Multiple elements create a new basis for valuing assets and for transferring capital.