Regulators in California, New York, Virginia, Utah, and soon in Florida, Georgia, and Connecticut, have introduced regulations that require financial disclosures to small businesses that seek commercial financing, thereby enabling merchants with pertinent information to make well-informed decisions. 

Overview of Disclosure Requirements 

In my previous article, I highlighted how California, New York, Utah, and Virginia have enacted laws governing commercial financing disclosures. These regulations aim to establish clear frameworks, fostering transparency and safeguarding the interests of businesses and individuals seeking commercial financing. 

For funders in the financing industry, adhering to these state-specific regulations is mandatory if they wish to continue to conduct business in those states. It showcases their dedication to merchant protection and cultivates an atmosphere of trust. Staying abreast of the ever-evolving regulatory landscape in each operational state is crucial. This provides accurate and comprehensive disclosure of terms, fees, and repayment schedules. 

This article will dive into the nuances of commercial financing disclosure laws in Florida, Connecticut, and Georgia. It will illuminate their unique characteristics, disclosure requisites, and any applicable exemptions. Importantly, it's worth noting that unlike California and New York who require disclosing an annual percentage rate (APR) in all three states, providers are not required to do so but rather are focused on total cost of capital.  

In transitioning away from APR to total cost of capital, the underlying motivation lies in the acknowledgment that APR is an inadequate measure for sales-based financing vehicles. This is because, unlike traditional loans, these financial instruments involve the purchase of future receivables, highlighting a distinct repayment structure. 

Florida HB 1353: Commercial Financing Disclosure Law  

On June 26, 2023, Florida Governor Ron DeSantis took a significant step towards ensuring transparency and consumer protection by signing the Florida Commercial Financing Disclosure Law (FCFDL). This legislation introduces disclosure requirements for covered commercial non-real estate secured financing transactions not exceeding $500,000. This law goes into effect on January 1, 2024. Furthermore, it outlines specific prohibitions for brokers, including the collection of advance fees. 

The FCFDL mandates the following key disclosure components: 

• Total Financing Amount: This includes the comprehensive amount of commercial financing. 

• Disbursement Amount: If different from the financing amount, this includes the disbursement amount after any deductions or withholdings, which must be itemized. 

• Total Amount Owed: This indicates the sum payable to the financing company. 

• Cost of Financing: The law mandates a clear breakdown of the total cost associated with the financing. 

• Payment Details: Specifics regarding payment frequency, mode, and amount must be provided. In cases where payments vary, an estimated initial payment and the methodology for calculating variable payments should be outlined. Additionally, information on when payments may vary is required. 

• Prepayment Rights: The law also requires disclosure of information related to prepayment rights and any associated penalties. 

The FCFDL applies to a wide array of commercial financing. This encompasses commercial loans, lines of credit, and accounts receivable purchase transactions. While the law sets stringent disclosure standards, it also offers exemptions for specific transactions and entities.  

In comparison to disclosure statutes in California and New York, the FCFDL imposes more limited disclosure requirements. Enforcement of the FCFDL is entrusted solely to the Attorney General, who can employ voluntary compliance, administrative proceedings, or judicial action to ensure adherence. Fines are capped at $20,000 in total ($50,000 in cases of repeated violations after prior notice). Notably, the FCFDL does not grant a private right of action. 

Connecticut SB 1032: An Act Requiring Certain Financing Disclosures  

Connecticut now stands alongside other states in implementing obligatory financial disclosures for commercial financing. On June 28, 2023, Governor Ned Lamont signed Senate Bill 1032, titled “An Act Requiring Certain Financing Disclosures” into law. This legislation mandates providers of sales-based commercial financing to make comprehensive disclosures to merchants. The legislation goes into effect July 1, 2024. 

The Bill places specific disclosure requirements that encompass a comprehensive array of information to be communicated to recipients, including but not limited to: the total financing amount, the disbursement amount (excluding any finance charges), the finance charge itself, the overall repayment sum (comprising the disbursement amount, and finance charge), an estimate of the repayment period, as well as details regarding the frequency, mode, and amount of each payment. Following New York’s example, Connecticut also requires that for refinancing transactions, Funders report the percentage of the unpaid portion of interest charges and other fees at the time of renewal.  

Moreover, the Bill necessitates the disclosure of any potential fees not covered by the finance charge, encompassing draw fees, late payment fees, and returned payment fees. Additionally, any fees or charges related to prepayment must be outlined, along with a description of collateral requirements or security interests. 

Georgia Fair Business Practices Act: SB 90 

In a significant move towards transparency and consumer protection, Georgia has become the fifth U.S. state to enforce small business financing disclosure requirements. Governor Brian Kemp signed Georgia Senate Bill 90 (SB90) on May 1, 2023, which is set to take effect on January 1, 2024. This new law amends Georgia’s Fair Business Practices Act, mandating providers of closed-end and open-end commercial financing, as well as accounts receivable purchase transactions of $500,000 or less, to furnish applicants with specific disclosures prior to finalizing a transaction.

Come January 1, 2024, providers of qualifying commercial financing transactions will be required to disclose essential terms to applicants. These terms include the total funding amount, total funds disbursed net of fees and costs, total amount to be paid to the provider, total dollar cost of the financing, payment schedule, and description of any prepayment penalties.  Additionally, the Act prohibits brokers from making false or deceptive claims in their business dealings.  

With penalties in place for non-compliance, providers and brokers of commercial financing should remain vigilant about evolving regulations in this space. 

Questions on State-Specific Regulations 

For any inquiries or potential issues pertaining to compliance with the aforementioned State regulations, please do not hesitate to reach out directly via email to compliance@cfgms.com. We will be pleased to address any questions or concerns you may have regarding regulatory compliance.