By updating an obscure 1930s rule, the Securities and Exchange Commission has opened up major new avenues for alternative online lenders and community banks to raise capital.

Banks and bank holding companies that do not currently report to the SEC may now raise up to $50 million without going public or asking permission from state regulators. And marketplace lending platforms can now offer their loans as investments to a broader range of individuals, potentially restoring that business' "peer-to-peer" roots.

For those banks, the timing is fortuitous as loan demand has picked up. Lending limits are largely a function of a bank's capital levels, so allowing institutions to raise funds more easily should allow them to make larger or more loans.

"For community banks, certainly this is a boon," said Brian Korn, a securities lawyer and partner at Manhattan law firm Manatt, Phelps & Phillips.

On Wednesday, the SEC finalized an update to Regulation A, a rule that had been in place since the Securities Act of 1934. The updated "Regulation A+" increases the cap on how much certain companies, ranging from startups to community banks, can raise from $5 million to $50 million for "Tier 2" offerings or $20 million for "Tier 1," with fewer hoops to jump through, primarily by preempting state financial regulations. The new rule also vastly broadens who can invest in these security offerings.

This means most American and Canadian businesses that do not already report to the SEC and are otherwise in good regulatory standing can now raise capital under what has largely been a dormant rule since its inception.

This includes banks or bank holding companies that have fewer than 1,200 equity holders, a recent reporting exemption created in 2012 by Congress. Banks and bank holding companies that don't qualify as reporting companies under the Exchange Act, and don't have to register securities through the act, will be eligible as long as they're in good standing with regulators.

The final Regulation A+ rule removes major barriers to who can invest in these offerings as well.

Under the old Regulation A, only accredited investors — individuals who made over $200,000 a year or had a net worth over $1 million — could buy securities. That meant only an SEC-estimated 7% of American individual investors could invest in such securities before.

This restriction was particularly notable in what was originally called the peer-to-peer lending industry. When that industry formed about a decade ago, the loans were intended to be funded by other individuals. But every loan is seen as a security in the eyes of the law.

As a result, institutional investors supply about 90% of the capital for what is now known as marketplace lending. Though institutional investors won't leave marketplace lending anytime soon, Regulation A+ has now opened this investment up to the other 93% of Americans who had been barred from marketplace loans. A notable exception is the industry leaders Lending Club and Prosper, which began filing with the SEC in 2009 after receiving consent orders from the regulatory agency.

These rule changes flow from the Jumpstart Our Business Startups (JOBS) Act, passed by Congress in 2012, meant to allow smaller businesses greater flexibility within regulations to raise capital by altering various aspects of securities law. Because much of the law covered relatively new territory, the SEC has taken its time in issuing final rules implementing it — including a still-pending crowdfunding rule related to a separate title of the law that was a substantial motivation for the JOBS Act in the first place.

The finalization of Reg A+ "is a big clearing of the deck for the SEC," said Rachel Goldberg, vice president of the financial services lobbying firm Rich Feuer Anderson. (RFA has worked with the Financial Industry Regulatory Authority on other provisions of the JOBS Act, but has not been directly involved in Reg A+.)

On a Tier 2 offering any investor can buy securities up to 10% of their annual income or net worth, whichever is greater, over a one-year period. There's no individual investment limit on Tier 1 offerings.

Still, "You're not going to see the floodgates opening up," the same way one would with an initial public offering, securities lawyer Korn said, but it does open another major route for alternative lenders to raise capital and grow.

The tiering of the offerings is at the discretion of the companies but is important from a regulatory perspective: in Tier 2 offerings the SEC preempts state blue sky laws, meaning that companies only have to file their offerings with federal regulators, whereas they had previously been required to file with states as well. For Tier 1 offerings state regulations still apply, but financial disclosures are less rigorous than the closer to initial public offering audit that Tier 2 requires.

"It seems like this threads the needle" of state and federal regulatory jurisdiction, Goldberg said.

States have been loath to give up their authority in this area, and federal legislators, like Sen. Elizabeth Warren, D-Mass., who take a hawkish view on financial regulation, have opposed pre-emption.

In August Warren and several other Democratic senators sent a letter to SEC Chair Mary Jo White in opposition to the type of pre-emption White finalized Wednesday. Sen. Warren's office did not respond to a request for comment.

The North American Securities Administrators Association did release a statement pushing back on the SEC's preemption ruling. "The reason it has taken three years to finalize the rule is states have lobbied very hard against this," said Korn.

The state authority under the old Regulation A made the rule a "dead letter," still on the books but defunct in practice, said D.J. Paul, principal of DJP&Co, a consulting firm. Indeed, Korn said that Regulation A had been taught in securities law essentially for academic purposes, rather than as something that could apply in the real world.

Of course this doesn't mean the state regulators will give up quietly. Paul said he's already heard rumblings of states suing the SEC to prevent implementation of the preemption part of the rule.

"I would hope that the state regulators who have made noise about standing in the way of the promulgation of the SEC's decision ... will reconsider being obstructionist upon their more detailed review of what was put forward today by the commission," Paul said.

Indeed its statement decrying the SEC ruling, the NASAA says it will "evaluate our options" after closer examination of the rule.

Despite potential legal challenges, Paul is effusive about the SEC's decision.

"It's a great day for capital formation, it's the democratization of wealth creation, and [it helps] job creation," he said.