When raising money, usually investors will demand their equity distribution in an SEC approved format like a Private Placement Memorandum, also known as a PPM or offering memorandum. This structure makes use of one of the three Regulation D exemptions stemming from the Securities Act of 1933.

The 3 powerful exemptions are Reg D (Regulation D) exemption Rule 504, Rule 505 and Rule 506. These rules carry different criteria that help businesses raise equity funding without all the stringent legalities of a public offering. These rules are defined like this: Rule 506 provides an exemption for limited offers and sales without regard to the dollar amount of the offering.

This exemption does not limit the number of accredited investors, but the number of non-accredited investors may not exceed 35 investors. (An accredited investor is any one investor with a certain net worth and or experience in the purchase of stocks.) All non-accredited purchasers, either alone or together with a designated representative must be sophisticated enough (i.e., have the knowledge and experience necessary) to evaluate the merits and risks of the investment. (An offering company typically determines the sophistication of its investors with a questionnaire subscription agreement.)

Rule 506 requires detailed disclosure of relevant information to potential investors; the extent of disclosure depends on the dollar size of the offering. Rule 505 offerings may not exceed $5 million, less the total dollar amount of securities sold during the preceding 12 month period under Rule 504, Rule 505 or Section 3 of the act. This exemption limits the number of non-accredited investors to 35 but has no investor sophistication standards. Rule 505 requires disclosure similar to that required for Rule 506 offerings, under $7.5 million.

Rule 504 offerings allow a business to raise a maximum of $1 million, less the total dollar amount of securities sold during the preceding 12 month period, under Rule 504, Rule 505 or Section 3 of the act. However, a business can raise only $500,000 by the sale of securities to persons residing in the states of Montana and Alaska, which have no disclosure laws applicable to the offering. For the states that do have disclosure laws, which are 48 out of the 50 states, a business can raise up to $1,000,000. Rule 504 has no prescribed disclosure requirements, no limit on the number of purchasers, and no investor sophistication standards. So if you’re trying to raise capital using a PPM, use the above criteria as a cliff note and as long as you stay within SEC guidelines, raising capital can be easy.

With the downturn in the economy and banks holding on to the bailout money they were supposed to be lending that was meant to stimulate the economy, the entrepreneurs are once again, thrown to the wolves.

Now there are self proclaimed ‘guru’ consultants popping up on the web who are reselling private placement memorandum authoring services. It’s unbelievable to think that a company will spend $5,000 to $20,000 with an absolute amateur who doesn’t know the first thing about a PPM or the legalities of this document that can lead to the client getting sued by investors down the road.

Who is looking out for the client? Sadly, no one seems to be looking past the almighty dollar and actually trying to help the entrepreneur succeed in raising the capital they need to grow their business which will lead to job creation and stimulating the economy. If you’re a business that’s trying to raise capital here is some advice on how to prequalify an Offering Memorandum service to find out if they are truly the author of your document or if they are simply using a template that will get you burned down the road or if they are simply taking your money and outsourcing the service to another group that has no real compression of this intricate document.

Ask them, in a stealthy way, to define these basic terms that are simple for anyone that does this for a living. What are Blue Sky Laws and how does that affect you when you’re raising capital? What is and do they include a complete state legend with your PPM? What is the difference between accredited and non accredited investors and how many of each can be used with each of the 3 types of PPMs?

What type of solicitation laws does the SEC have in place for a company that is fund raising with a Regulation D Exemption? How can you prepare for due diligence before the PPM is completed and in the hands of investors? These are just some of the most basic questions that will give you a feel for how well the consultant you are speaking to truly knows this industry. Always get all your questions answered before going with a consultant in this industry. Never go with a pushy consultant and always remember, the best Regulation D (PPM) consultants will answer all your questions without up sells or ‘hurry up because this is a limited time offer’ mentality. The SEC created Regulation D exemptions (PPM) to help companies raise capital in a streamlined, simple way and this is an incredible method for any business to raise a little or a lot of money. Find the right consultant that includes everything in one, cost effective bundle and you’re on your way to getting the cash you need for your expansion objectives.

Many people say, that what you don’t know is what will hurt you. That’s not true. It is what you don’t know that you don’t know which will hurt you.

Please be advised that I am not an Accountant or Attorney – so prior to acting on any of the information presented in this article, be certain to contact a Tax and Law professional to get legal advice specific to your situation.

Most people are pretty familiar with Personal Credit and what they need to do in order to maintain a good FICO Credit Score. Actions such as low revolving balances, always making payments on time, using different types of credit, and length of credit history all play a major rule in determining an individuals Personal Credit worthiness. If dealt with properly, leveraging Personal Credit can be very useful in further advancing an individuals net worth by wisely investing the borrowed money.

You may already be aware that there is Personal Credit and Business Credit. Personal Credit applies to an individual’s credit worthiness, while Business Credit applies to a company’s credit worthiness. There are many similar characteristics between Personal and Business Credit, however Business Credit has a number of unique characteristics.

Personal Credit is connected with an Individual’s Social Security number as opposed to Business Credit which is connected to a company’s (LLC, C Corporation, S Corporation, etc) Tax Identification Number, also known as FEIN (Federal Employer Identification Number) or just EIN (Employer Identification Number).

As an individual you can only have one Social Security number for your entire lifetime however there are no limits to how many companies you can own, each with a unique Tax ID number. So, there is only so much personal credit an individual can obtain, but there is virtually no limit to how much a company can obtain in Business Credit.

Secondly, Personal Credit worthiness is monitored by the three major credit bureaus; Equifax, Transunion, and Experian. However, the majority of Business Credit worthiness and reporting is conducted by a company known as Dun & Bradstreet. Unlike the major U.S. based credit bureaus, Dun & Bradstreet is primarily based out of the country and operates very differently than Equifax, Transunion, and Experian.

There is a methodology (a set of specific processes and to-dos) to structure your company such that it maximizes your Business Credit. Not following this method by no means indicates that you will not acquire Business Credit, but it does means that the journey to that point may take longer or you may not maximize the credit your receive.

In conclusion the situation is really sime: Using and levering OPM (Other Peoples Money, i.e. Business Credit) to develop and operate a business is more efficient and economically preferable to saving the same amount of money yourself.

A friend and business associate of mine obtained a $100,000 business loan utilizing the credit rating of a company in business for only one year. The idea and process so intrigued him that he approached his mentor (who helped him in obtaining the business credit loan) about starting a business to educate others in applying for and receiving large amounts of Business Credit.