Bill > S233

Introduced Session

This bill requires certain providers of small business financing to provide disclosures to small business concerns. Under the bill, "provider" is defined to mean a person who extends a specific offer of small business financing to a small business concern located in this State. "Provider" also includes a non-depository institution, which enters into a written agreement with a depository institution to arrange for the extension of small business financing by the depository institution to a small business concern via an online lending platform administered by the non-depository institution. The bill requires providers that extend small business financing to a small business concern located in this State to provide, at the time the contract is offered, the following disclosures to the small business concern, as applicable: (1) for a closed-end loan, the total dollar costs to be charged to a borrower, assuming the borrower pays the loan according to its original payment schedule, plus all required fees and charges that cannot be avoided by the borrower; (2) for an open-end loan, the total dollar costs to be charged to a borrower, plus all required periodic and non-periodic fees and charges that cannot be avoided by a borrower; (3) for a factoring transaction, the purchase price expressed as a percentage of the amount of the purchased receivable, plus all required fees and charges that cannot be avoided by the borrower; (4) for an asset-based transaction, the advanced rates, expressed as a percentage as a percentage of the amount of the receivable or other asset supporting the transaction, plus all required fees and charges that cannot be avoided by the borrower; (5) for a closed-end loan, the annual percentage rate, expressed as a nominal yearly rate, inclusive of any fees and finance charges; (6) for an open-end loan, the estimated annual percentage rate. In providing an estimated annual percentage rate, the rate shall be calculated using the daily, weekly, or monthly payments from the small business concern that are assumed by the provider in the underwriting process. The disclosure shall state that the estimated annual percentage rate is intended as a good faith estimate, and may not be accurate if the business repays more quickly or slowly that the estimated term; and (7) for a factoring or asset-based transaction, the factor rate, expressed as a decimal, and the factoring commission rate, expressed as a percentage of sales or claims, including any minimum or maximum payment amounts or the interest rate index and spread applicable to the transaction. The bill requires providers who offer cash advance to make the following disclosures: (1) the total dollar costs to be charged to a small business concern, assuming the small business concern delivers all purchased receivables to providers at the time they are generated or at a mutually agreed upon time, and all required fees and charges that are paid by the small business concern and that cannot be avoided by the small business concern; (2) the amount financed, which shall mean the advance amount less any prepaid finance charges; and (3) for a cash advance that calculates repayment costs dependent on the small business concern's future receivables, the estimated annual percentage rate, provided as a range, with at least three different repayment times provided and a narrative explanation of how each rate was derived. Any estimated annual percentage rate is to be calculated using a projected sales volume that is based on the small business concern's average historical sales or the sales projections relied on by the provider in underwriting the cash advance; or (4) for a cash advance that calculates repayment costs as a fixed payment, the annual percentage rate, expressed as a nominal yearly rate, inclusive of any fees and finance charges. The bill requires the provider to disclose the finance charge, expressed as a dollar cost, which means the amount of any and all costs of small business financing, including interest, transaction fees, origination fees, and any third party fees that are paid by the small business concern and cannot be avoided by the small business concern. For a factoring or asset-based transaction, or small business financing that is fee-based, the disclosure may be provided as narrative explanation, formula, representative examples, or a methodology. The bill requires providers to make the following disclosures concerning the amount financed by a small business concern: (1) for a closed-end loan, the amount financed, including any fees deducted or amounts withheld at disbursement; (2) for an open-end loan, the borrowing limits, and, if applicable, the amount scheduled to be drawn by the borrower at the time of disclosure; or (3) for a factoring or asset-based transaction or a cash advance, the amount financed. Providers are required to disclose, for payment amounts that are fixed, the payment schedule, or, for payment amounts that are variable, a description of the method used to calculate payment amounts and frequency of payments. The bill also requires providers to make the following disclosures: (1) if the contract with the provider requires the small business concern to pay or be liable to pay a fee directly to any broker or other third party with respect to the small business financing, a description of that fee; (2) a description of the prepayment policies, including any fees, expenses or charges due when the small business financing is paid in full; (3) if not otherwise provided in writing to the small business concern, notice that the provider has acquired or will acquire a security interest in the collateral and a description of the collateral; and (4) a description of any other fees or charges that can be avoided by the small business concern. The bill requires providers extending financing to obtain a written statement of intended purposes signed by the small business concern for purposes of determining whether financing is made for a business purpose. The bill requires that brokers who arrange or offer to arrange small business financing or assist or advise a small business concern in obtaining financing for consideration must provide a written disclosure to the small business concern and to the provider stating the total dollar amount of fees charged to the small business concern by the broker. The broker must provide this disclosure in a document separate from the provider's contract with the small business concern, prior to the consummation of the small business financing transaction. Under the bill, the commissioner is required to promulgate regulations to provide that providers that extend small business financing must notify small business concerns before any change that significantly affects any of the disclosures required to be provided by the bill. A provider or broker that violates any provision of the bill is liable to a civil penalty of not more than $10,000 regardless of the number of small business concerns subject to that violation. If the court determines that a provider or broker knowingly violated any provision of the bill, the court may order additional relief. Any small business concern or provider which is subject to any violation of the bill may bring an action against the provider or broker and recover a civil penalty, if the court finds the provider or broker knowingly violated this act. The bill does not apply to certain: (1) insured depository institutions-affiliated parties; (2) insured credit unions; or (3) commercial equipment lease or loan financing agreements.

Committee Categories

Nellie Pou (D)*,  Troy Singleton (D)*, 

Senate Amendment (32-0) (Singleton) (on 12/20/2021)

Official Document