For years, private capital markets have favored Rule 506(b) over 506(c) due to one key factor: ease. While 506(c) allowed for general solicitation, it also came with the burden of verifying accredited investor status through extensive documentation—something that slowed down deals and added compliance friction.
But now, the SEC has issued a transformative update. And it changes everything.
What Changed?
In a quiet yet groundbreaking shift, the SEC’s latest guidance brings Rule 506(c) in line with Rule 506(b) by allowing issuers to rely on investor self-certification for accreditation—so long as the issuer has a reasonable belief the investor is indeed accredited. This new interpretive stance simplifies the fundraising process for sponsors while preserving the integrity of investor protections.
Why This Matters for Private Lenders
Private lending funds often rely on Regulation D exemptions to raise capital. Until now, most leaned heavily on Rule 506(b) because it required only investor representations—not documentation. The tradeoff was that 506(b) prohibited advertising or general solicitation. On the other hand, Rule 506(c) permitted marketing but demanded intrusive financial documentation, limiting its practical use.
Now, fund managers and sponsors can use 506(c)’s powerful marketing reach while relying on investor attestations—just like with 506(b). This update opens the door to broader audiences, faster closes, and more flexibility without sacrificing legal compliance.
Strategic Advantage for Capital Raisers
This change is a significant win for capital raisers. It levels the playing field between 506(b) and 506(c), allowing sponsors to expand their networks, market more freely, and close deals with greater speed and certainty. If you’ve hesitated to use 506(c) in the past, it’s time to take a fresh look.
Conclusion
Rule 506(c) is no longer a burden—it’s a weapon. By aligning verification standards with 506(b), the SEC has empowered issuers to market boldly while maintaining investor trust. This is a major development in the capital-raising playbook, and smart sponsors will act accordingly.
