You can build the best debt fund in the world, but if you don’t raise capital the right way, the SEC can shut it down before it gets off the ground. Compliance isn’t optional. It’s survival.
Let’s dive into how you can legally and safely and confidently raise your capital for your debt fund.
I’m Tilden Moschetti, syndication attorney and founder of Moschetti Syndication Law. I help fund managers raise money the right way so they can grow their funds without sleepless nights worrying about the SEC.
Today I’m going to walk you through exactly what you need to know to raise capital compliantly for your debt fund.
When you start raising capital for a debt fund, it’s exciting, but it’s also where most new managers run straight into hidden dangers, because the moment you take $1 from an investor, you’re no longer just a fund manager, you’re an issuer of securities—whether you realize it or not—and that means you’re operating under a tight set of federal rules designed to protect investors and to penalize managers who cut corners.
The good news is that Regulation D gives debt fund managers a practical path forward. It allows you to raise an unlimited amount of money without having to register your fund with the SEC, saving you time, complexity, and hundreds of thousands of dollars in costs.
But Regulation D isn’t a free pass. It has strict rules, and you have to pick your lane. Rule 506(b) and Rule 506(c) are the two main choices. Which you choose sets the stage for everything else that follows.
If you decide to raise capital privately through people you already have relationships with, you’re in 506(b) territory. Under 506(b), you cannot publicly advertise—no Facebook posts, no podcasts, no email blasts to a list of strangers. Everything has to happen through quiet, personal conversations with investors you already know and trust.
You can accept up to 35 sophisticated but non-accredited investors, along with an unlimited number of accredited investors, but you do have to be careful. Sophistication means that they must have the financial knowledge to evaluate the risks themselves. It’s not just about whether they like you—it’s about whether they genuinely understand what they’re getting themselves into.
But maybe you don’t have a huge personal network, or maybe you want to scale bigger, faster. Well, that’s where Rule 506(c) comes in.
506(c) lets you advertise your offering publicly. You can post on LinkedIn, run ads, speak at events—anything to get the word out. But there’s a major trade-off: You can only accept accredited investors, and you must verify that they’re accredited before taking a dime.
That means real proof—tax returns, bank statements, or letters from CPAs or attorneys—not just someone checking a box and saying, “Trust me.” Verifying accreditation isn’t just paperwork—it’s your shield against claims later if things go wrong.
Whichever path you take, whether it’s 506(b) or 506(c), you must also file a Form D with the SEC within 15 days of your first sale. This is a public notice that tells the SEC and state regulators that you’re conducting a private offering under Regulation D.
Failing to file Form D doesn’t invalidate your exemption, but it can create serious headaches. States can bar you from raising money within their borders until you’re back in compliance. And the SEC might look more closely at your offering if something does go wrong.
So what else do you need to make sure your capital raise is compliant?
You need a private placement memorandum—your PPM. This document discloses all the risks, terms, and information that an investor needs to know to make an informed decision. Even if you’re not legally required to provide a PPM, it’s your best protection against claims that an investor wasn’t told the full story.
You also need a subscription agreement, which is what investors sign to commit their capital, and an operating agreement or a limited partnership agreement that spells out how the fund works. All these documents must be drafted to reflect your specific strategy and structure. Templates can be dangerous. The SEC and investors won’t care that you were trying to save money—they’ll care that you got it right.
Finally, your marketing has to match your exemption. If you’re doing a 506(b), you can’t accidentally advertise. If you’re doing a 506(c), you have to keep detailed records of how you verified accreditation.
Raising capital for a debt fund the right way isn’t just about checking boxes. It’s about building a foundation of trust, compliance, and professionalism that will support your fund for the long haul.
Get these things right and you can focus on what you do best—making smart investments and delivering returns.