If you're thinking about raising equity for your business but you're daunted by the image of the tens of thousands of dollars you'll have to spend before you know if investors are interested, here's good news. Recently, the Securities and Exchange Commission eased its registration and solicitation requirements relating to small companies. The new rules allow small businesses a great deal more latitude to "test the waters" for investor interest; there's no need to start writing big checks to your lawyers and accountants until you have a much clearer notion of whether you will actually be able to stir up interest.

The SEC's actions are part of a stepped-up effort to make it easier for small private companies to tap private- and public-equity markets. Although it's too soon to know how much impact the changes will have, many experts think that, at least in the short term, they will encourage small businesses to explore new financing options.

Previously, for instance, businesses raising money under Rule 504 of Regulation D were limited to raising $1 million in a 12-month period, and resale of those securities was heavily restricted. Though the dollar and time limits remain, most of the federal restrictions on resale (with the exception of antifraud and civil-liability provisions) have now been lifted. And companies raising money under Rule 504 can now even advertise for investors.

For those looking to raise more than $1 million, the SEC has also loosened the regulations governing so-called Regulation A offerings. The dollar ceiling, which was previously set at $1.5 million, has been raised to $5 million. In addition, the SEC now gives issuers the option of using a new -- and less costly to prepare -- question-and-answer format (similar to that used in 28 states). As long as no money is accepted until the SEC has approved the offering materials, companies can use an abbreviated document describing the business and its products to "test the waters."

-- Research assistance by Phaedra Hise

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For more information on these small-business initiatives, request Release #33-6949 by faxing the SEC's public reference branch at 202-272-7231.

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