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U.S. Small Business Administration

When assessing your capital needs, you should consider programs offered through the U.S. Small Business Administration (SBA). Congress established the SBA in 1953 to aid, counsel, and protect the interests of the Nation's small business community. The SBA accomplishes this in part by working with intermediaries, banks, and other lending institutions to provide Funds and venture capital financing to small businesses unable to secure financing through normal lending channels. 

Additional Financial Resources and Information from the SBA's Office of Advocacy

Angel Capital Electronic Network (ACE-Net)  

The Office of Advocacy of SBA has established an Internet site where small companies may list their Regulation A and Regulation D 504/SCOR stock offerings. ACE-Net is a cooperative effort between SBA and nine universities, state-based entities, and other non-profit organizations to provide a listing service where small companies may list their stock offering for review by high net worth investors (accredited investors). In addition, ACE-Net anticipates providing mentoring and educational services for small companies needing business planning and securities information.

Small Business Lending in the United States  

The Office of Advocacy of SBA has ranked the nearly 10,000 banks in the country on a state-by-state basis to determine which banks are "small business friendly." The state-by-state directory helps small businesses locate which banks in their area are more likely to lend to small business. The directory is available over the Internet at: http://sba.gov/ADVO/stats.



Many small business owners dream of taking their company public. Those dreams can now become reality under a program from the Securities & Exchange Commission (SEC), called Small Corporate Offering Registration (SCOR).  SCOR offers small businesses a low-cost, minimal-hassle alternative to filing a traditional IPO or DPO. 

Using SCOR, businesses can raise up to $1 million in equity capital annually for business startup, development or growth, by filing a self-directed Direct Public Offering (DPO). An SEC spearheaded task force developed SCOR as a way to help small businesses gain easier access to equity capital, while satisfying SEC requirements. The goal was to devise a filing process simple enough for an entrepreneur, his corporate attorney and his CPA to complete, yet thorough enough for full disclosure. Out of this process, SCOR was born. 

SCOR caters to entrepreneurs, promoters, attorneys and accountants who are not securities specialists. The program works best for companies who are required to be registered under state securities laws, and whose securities are exempt from registration with the SEC under Rule 504 of Regulation D. Companies can use SCOR to sell up to $1 million of common stock, preferred stock, options, warrants, rights, notes or other debt securities every 12 months. 

Companies who wish to take advantage of the SCOR program are required to file two forms, FORM D and SCOR Form U-7. The SCOR FORM U7 was developed specifically for SCOR and is uniform for all states. It has 50 questions and serves as the primary registration document. Companies file Form U-7 with each state in which they plan to sell, and file Form D with the SEC. 

SCOR is advantageous over traditional IPO and PPOs because it allows companies to have greater access to capital, gives them the ability to select shareowners and custom fit their financing needs. It permits companies greater latitude to determine the price, pick the team and control the costs, and allows them to create a direct relationship with shareholders. 

In general, filing a SCOR is significantly less restrictive than doing a private placement offering (PPO), and less costly than filing an IPO. Stock sold under a SCOR can be freely traded in the secondary market, making the investment more liquid and thereby attractive to investors. Additionally, there are no restrictions on advertising and general solicitation, no accredited /non-accredited investor restrictions, and the resale of securities is permitted under SCOR. 

While the SCOR process is simple and cost-effective compared to other public offering options, there is relatively little information available in the marketplace for companies wanting to complete a SCOR. 

Private Offerings 

Regulation D Introduction

This document is not legal advice, and is intended solely for information and educational purposes. If you are contemplating a private placement, or any legal transaction, you should consult an attorney who can provide you with the advice that you need, for your specific circumstances. Securities law, and corporate finance, is not the area for novices to play. Incorrect documentation can have serious ramifications for all involved parties. 

The term "private placement" as used in this text refers to the offer and sale of any security by a brokerage firm not involving a public offering. Private offerings are not the subject of a registration statement filed with the SEC under the 1933 Act. Private placements are done in reliance upon Sections 3(b) or 4(2) of the 1933 Act as construed or under Regulation D as promulgated by the SEC, or both. Regulation D, promulgated in 1982, sets forth certain guidelines for compliance with the Private Offering Exemption. Any registered representative who are involved in the private placement process are expected to have a working familiarity with Regulation D. 

 To qualify as a private placement, an offering by an issuer must meet either the requirement of Sections 3(b) or 4(2) of the 1933 Act as developed through SEC interpretation and court decisions or must follow the conditions set out under Regulation D of the 1933 Act. Persons claiming the exemption from the 1933 Act carry the burden of proving that its activities came within that exemption. 


Regulation D

Regulation D is a series of six rules, Rules 501-506, establishing three transactional exemptions from the registration requirements of the 1933 Act. Rules 501-503 set forth definitions, terms and conditions that apply generally throughout the Regulation. Specific exemptions are set out in Rules 504-506. 

Rule 504 applies to transactions in which no more than $1,000,000 of securities are sold in any consecutive twelve-month period. Rule 504 imposes no ceiling on the number of investors, permits the payment of commissions, and imposes no restrictions on the manner of offering or resale of securities. Further, Rule 504 does not prescribe specific disclosure requirements. Generally, the intent of Rule 504 is to shift the obligation of regulating very small offerings to state "Blue Sky" administrators, though the offerings continue to be subject to federal anti-fraud provisions and civil liability provisions of the Exchange Act. 

Rule 505 applies to transactions in which not more than $5,000,000 of securities is sold in any consecutive twelve-month period. Sales to thirty-five "non-accredited" investors and to an unlimited number of accredited investors are permitted. An issuer under Rule 505 may not use any general solicitation or general advertising to sell its securities. 

Rule 506 has no dollar limitation of the offering. Rule 506 is available to all issuers for offerings sold to not more than thirty-five accredited investors.  The issuer may sell the securities to an unlimited number of "accredited investors" and to 35 non-accredited persons. There are no requirements of "sophistication" or "wealth" for non-accredited persons to whom the securities are sold. 



Pursuant to Section 3 (b) of the Securities Act of 1933, as amended ("the Act"), the United States Securities and Exchange Commission ("the Commission") was empowered by Congress to prescribe rules and regulations to exempt from registration the sale of securities where the of the offering was $5,000,000 or less and otherwise limited in scope. In 1992, the Commission 
adopted rules and regulations and amended existing regulations to facilitate the raising of capital by small business issuers and reduces the cost of compliance with Federal Securities Laws. These amendments were described in releases by the Commission to be part of what was described as "SMALL BUSINESS INITIATIVES." 

As part of these "Small Business Initiatives," effective August 13, 1992, Rule 504 of Regulation D was amended to provide that companies are not required to file regular reports with the Commission pursuant to Section 13 of the Act were permitted to sell up to $1,000,000 of securities in a twelve month period. There is no prohibition or limitation against general solicitation of investors. 

In an explanatory Executive Summary published in the Federal Register, 57FR35442, the Commission defined a small business issuer to include Companies with annual revenues of less than $25,000,000 whose voting stock does not have a public float of $25,000,000 or more. The Commission also made it clear that lower priced offerings by legitimate small business issuers would 
be the main Beneficiaries of the revised exemptions and that, in its view, there were adequate safeguards governing the over-the-counter market to counter marketing abuses that had arisen in the past with to what are commonly referred to as "penny stocks". 

As with all offerings of securities, however, revised Regulation D is not a haven from the Federal Antifraud Laws. Any offering made by a legitimate small business issuer must still provide potential investors with sufficient information concerning the potential risks of the investment. Moreover, Regulation D, Rule 504, does not eliminate the need for the issuer to comply with State Securities Laws and Regulations. 

The Federal Securities Code 

Several years ago, a new regulation was adopted by the Securities and Exchange Commission that permits a small company to sell up to $1,000,000 of equity in a twelve month period. There is no need to include a certified financial statement in the offering material, and a simple Form D form is all that is required to be filed with the Commission. It is, however, necessary to file the registration documents required by each state where the company intends to sell securities, commonly referred to as "Blue Sky Laws." 


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