Yes, you can. There’s no waiting period if you convert from a 506(b) to a 506(c) offering. But if you convert from a 506(c) to a 506(b), you will have to stop raising money for the 506(c) offering for at least 30 days before you can start raising money for the 506(b) offering. This is going to be a problem if you are raising money for a specific property that closes within 90 days, as you probably won’t have sufficient time to raise the money.
Why is there a waiting period when you convert from 506(c) to 506(b)? So that you have time to develop substantive relationships with any investors you met from your advertising before you solicit them for your 506(b) offering.
You will also incur additional legal fees for:
- Converting and re-issuing the offering documents
- Filing a new Form D with the SEC and doing new Blue Sky filings for your converted offering
Bottom line, you should anticipate total costs of $5,000-$8,000 for legal fees and Blue Sky filing fees to do the conversion.
Regarding conversion from 506(b) to 506(c), the real issue here is that you shouldn’t ever have to do this if you have created a written Investor Marketing Plan and have developed pre-existing substantive relationships with a sufficient number of investors, all of whom can fund your Rule 506(b) offering without advertising.
Further, there is far less likelihood of success that you will actually be able to raise the money through advertising, as you will have to explain to the people who don’t know you that your offering started out as a Rule 506(b) offering that includes non-Accredited investors; and that because you were unable to complete the raise, you converted it to a Rule 506(c) offering so you can now advertise. It doesn’t tell a compelling story.
