Choosing between 506(b) and 506(c) for your debt fund sounds simple until you realize the wrong choice could lock you out of raising millions or even cost you your legal exemption.

Let’s walk through exactly how to pick the right path for your capital raise.

Hi, I’m Tilden Moschetti, syndication attorney and founder of Moschetti Syndication Law. I help fund managers set up their raises the smart way so they can scale without worrying about SEC headaches.

Today, let’s talk about the critical choice every fund manager faces: 506(b) versus 506(c).

When you’re launching a debt fund, one of the first and most important decisions you’ll make is whether to raise under Rule 506(b) or Rule 506(c) of Regulation D. And it’s not just a technical decision. It shapes how you find investors, how you communicate, and how much compliance burden you carry along the way.

Most people first hear about 506(b) because it’s the classic method. Quiet raises, private conversations, no billboards, no social media blasts, no advertising.

Under 506(b), you work within your personal network—people you know, people you have real relationships with. You can bring an unlimited number of accredited investors, plus up to 35 sophisticated but non-accredited investors in any 90-day period, as long as they truly understand the risks.

And that’s the big advantage. You don’t have to verify accredited investor status through third parties. You can simply rely on signed investor questionnaires and the strength of your pre-existing relationships.

But 506(b) comes with real limitations. If you slip up and post about your fund publicly—even just casually mentioning it on a podcast or dropping a hint on LinkedIn—you could lose your exemption.

And without that exemption, the SEC could require you to offer your investors their money back. It’s a fragile path that requires discipline. One wrong move in marketing and you’re outside the bounds.

Now, compare that to Rule 506(c), which opened the door to public marketing for private offerings. Under 506(c), you can market your fund openly—on websites, through ads, on podcasts, even with live events or webinars. You can cast a much wider net and attract investors far beyond your personal network.

But that freedom comes with a cost. Every investor must be accredited, and you must verify their status with real documentation—tax returns, W-2s, brokerage statements, or a professional third-party letter. A simple investor questionnaire just won’t cut it anymore.

Choosing between the two isn’t just about your preferences. It’s also about your business model. If you already have a strong network of qualified investors—people you know who trust you—506(b) could be the smarter path. It’s simpler, cheaper, and requires less verification work.

Plus, you can include a few sophisticated investors who aren’t technically accredited but have the experience to understand complex deals.

But if you need to reach beyond your existing network—if you plan to scale nationally, tap into new markets, or build an online brand—well, 506(c) may be the better choice.

Yes, it’s a heavier lift up front. Verification can feel intrusive for investors, and some people will balk at providing those tax returns and financial statements. But if you’re prepared to manage that process professionally, 506(c) can open up the doors that 506(b) simply can’t.

It’s also worth considering your marketing plan. If you plan to create a digital presence—blogging, podcasting, running webinars, building email lists—you’re already walking into a public space. Trying to fit all that under 506(b) could be dangerous.

506(c) was built for this kind of outreach.

There’s a third factor—your fundraising timeline. If you need to close fast and you already have investors lined up, well, 506(b) can get you to the finish line quicker.

Verifying accredited investor status under 506(c) can slow things down, especially if investors delay sending documents. Speed matters in competitive markets.

Making the right choice between 506(b) and 506(c) isn’t just about this deal. It sets the tone for how you build your investor base long term. If you get it right now, you’ll make every future raise smoother, faster, and safer.

When you understand the real differences between 506(b) and 506(c), you can raise money the smart way, the compliant way, and build a fund that’s ready to scale.

If you want help picking the right path and setting up your raise for success, reach out. I’m Tilden Moschetti.

Thanks for watching, and here’s to building something great.