Why would an issuer choose a 505 Reg D offering over a 504 Reg D offering?

The goals, outcomes and legal implications of Reg D Rule 504 and 505 are different. Advisably, consult a securities attorney who can evaluate both options from EB-5 perspective before you make a choice.

Rule 505 was repealed as of May 22, 2017, as part of the same regulation that increased the Rule 504 offering limit to $5 million. The choice of federal exemptions is then generally a choice between Rule 506 and Rule 504, with Rule 506 overwhelmingly chosen in EB-5 offerings (often in tandem with Regulation S for exclusively offshore offers and sales.) The advantage of offering to unaccredited investors under Rule 504 is latterly an illusion. Rule 504 requires you to go through the substantive registration or qualification procedures of at least one state, which are typically expensive, onerous and time-consuming, and do not automatically result in approval. And then you are very limited in the states where you can accept investors. Rule 506 does not require you register or qualify the offering with the SEC and overrides any state registration or qualification requirements. Most potential EB-5 investors are wealthy enough to qualify as accredited investors.

The information in this post is outdated. Most people use Rule 506. Rule 505 is repealed so that is not even an option. The reason to use Rule 506 instead of Rule 504 is that using Rule 506 allows you to preempt state law and 504 does not so then you have to worry about making detailed filings in each relevant state. Also, Rule 504 does not allow you to make market publicly while Rule 506 does.