The SEC has loosened regulation to make it easier for businesses to raise capital

One good thing that has come from the pandemic has been the loosening of regulations in order to make it easier for businesses and other entities to operate.

The latest change in regulation has come from the Securities Exchange Commission (SEC) which wishes to make it easier for small businesses to obtain capital through crowdfunding offerings. To accomplish this,

“The SEC this week Decided to temporarily exempt small business owners from needing to get an independent audit of their financial statements if they sell between $107,000 and $250,000 in securities within a 12-month period.

It also removes a 21-day waiting period before businesses can use the money raised through an equity sale.

The exemptions only apply to fundraising done by the end of August and by companies that have been organized and operated for at least six months before the crowdfunding offering begins.

The offering can start without financial statements being filed but money committed can’t be accepted until after they have been disclosed. The company must also disclose that it is making the offering using the temporary SEC rules waiver.

SEC chairman Jay Clayton said the following regarding this decision,

In the current environment, many established small businesses are facing challenges accessing urgently needed capital in a timely and cost-effective manner. 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.

By being able to sell stakes in their companies faster, companies might be able to offset the loss of revenue, and, thereby cover their increasing costs. Platforms of crowdfunding have already seen a surge in the number of businesses trying to raise capital with them. The timing may however work against businesses as they are having to sell more equity for relatively lower amounts of money than they would have months ago since they need to survive.

While loosening rules is a good trend, it shines a light on a big problem, namely that our regulations are overly strict and hamper businesses. After the pandemic, there is a need for local, state, and federal governments to undertake some serious reform to loosen laws and make it easier for businesses to operate.

If we do not need these laws during the pandemic, we do not need them in non-pandemic times either.