Private fund managers and capital raisers who rely on Regulation D have long viewed Rule 506(c) as a double-edged sword. While the exemption permits general solicitation and advertising, its burdensome investor verification requirements historically discouraged many issuers from using it. That changed on March 12, 2025, when the U.S. Securities and Exchange Commission released a pivotal no-action letter that fundamentally reshapes how issuers can verify accredited investors under Rule 506(c).
For private lenders seeking to scale their capital-raising efforts, this development represents one of the most significant regulatory shifts in recent years. Below, we break down what changed, why it matters, and how fund sponsors can take advantage of the new framework.
What Made Rule 506(c) So Difficult Before March 2025
Since the JOBS Act introduced Rule 506(c) in 2013, issuers have been required to take “reasonable steps” to verify that every investor in their offering qualifies as an accredited investor. In practice, this meant collecting sensitive financial documentation such as tax returns, bank statements, brokerage records, or third-party verification letters from CPAs or attorneys.
This process created friction at every stage of the fundraising cycle. Prospective investors balked at sharing personal financial records with fund managers they were only beginning to evaluate. Compliance teams spent significant time and resources chasing documentation. And the overall onboarding timeline stretched far beyond what many fund sponsors considered acceptable, particularly when compared to the self-certification approach permitted under Rule 506(b).
The result was predictable: despite the marketing advantages of Rule 506(c), most issuers defaulted to 506(b) offerings, sacrificing their ability to publicly advertise in exchange for a simpler verification process.
The March 2025 No-Action Letter: Key Changes
The SEC’s no-action letter introduces three critical changes that substantially reduce the compliance friction associated with Rule 506(c) offerings.
Streamlined Verification Through Minimum Investment Thresholds
Issuers may now rely on high minimum investment amounts as a reasonable step toward verifying accredited investor status. Under the updated guidance, an entity investing at least $1 million or an individual investing at least $200,000 can satisfy the verification requirement through a written representation confirming their accredited status, provided the issuer has no actual knowledge that contradicts the claim.
This threshold-based approach eliminates the need for tax returns, financial statements, or third-party letters in a significant number of transactions. For fund managers operating mortgage pools, debt funds, or other private lending vehicles, this streamlining could cut onboarding timelines by weeks.
Reduced Compliance Burdens for 1940 Act Funds
The updated guidance provides additional flexibility for fund managers maintaining and operating privately placed funds registered under the Investment Company Act of 1940. These 1940 Act-only funds benefit from reduced documentation requirements that make Rule 506(c) a more practical option for ongoing capital formation activities.
Expanded Viability of Online Capital Raising
By reducing the invasiveness of the verification process, the no-action letter makes digital fundraising platforms significantly more practical for 506(c) offerings. Issuers can now market their investment opportunities online, onboard investors through streamlined digital workflows, and reach a broader network of potential capital sources without the compliance bottleneck that previously made online distribution channels impractical.
Why This Matters for Private Lending Fund Managers
The private lending industry has experienced explosive growth over the past decade, and fund formation has become a primary vehicle for scaling operations. Whether structuring a mortgage pool, a bridge loan fund, or a diversified private credit vehicle, capital raisers increasingly need the ability to market broadly and onboard investors efficiently.
Rule 506(c) now offers a realistic path to achieve both objectives. Fund sponsors can advertise their offerings through digital channels, industry conferences, and direct outreach campaigns while relying on a verification process that no longer requires invasive financial disclosures from qualified investors.
For issuers who previously defaulted to Rule 506(b) solely because of verification concerns, the March 2025 guidance provides a compelling reason to reconsider their exemption strategy.
Choosing the Right Exemption for Your Capital Raise
Selecting the optimal Regulation D exemption depends on several factors, including your target investor base, marketing strategy, fund structure, and compliance infrastructure. While the updated Rule 506(c) framework offers significant advantages, it remains essential to evaluate whether 506(b), 506(c), or another federal securities exemption best aligns with your capital formation objectives.
The corporate and securities attorneys at Geraci LLP bring decades of experience guiding private lenders and fund managers through the complexities of Regulation D compliance, fund formation, and capital-raising strategy. Whether you are launching a new fund or optimizing an existing offering, our team can help you navigate the regulatory landscape with confidence.
To discuss how the updated Rule 506(c) framework applies to your business, contact Geraci LLP today at (949) 403-3488 or visit us at 90 Discovery, Irvine, CA 92618.
