Alert

February 16, 2018

California Bill Proposes Commercial Loan and Factoring Disclosures

California SB 1235, introduced on February 15, 2018, would require any commercial lender or factoring company, including an MCA company, to provide the following disclosures in writing at the time of offering financing:

  • A full disclosure of the total amount of any fees charged in connection with the commercial financing. This must be labeled "Total Amount of Fees" in the disclosure.
  • The total amount of funds provided by the commercial financing. This must be labeled "Total Amount of Funds Provided" in the disclosure.
  • The annual percentage rate for the commercial financing calculated according to the provisions of the federal Truth in Lending Act and Regulation Z. In the case of a cash advance, the annual percentage rate must be calculated based on the daily, weekly, or monthly delivery of receivables from the business to the financer that is assumed as part of the financing offer. This must be labeled "APR" in the disclosure.
  • The term length of the commercial financing, displayed in months or years. This must be labeled "Term Length of Financing" in the disclosure.
  • The total monthly payment amount owed by the prospective borrower under the commercial financing. This must be labeled "Total Monthly Payment" in the disclosure.
  • The total dollar cost of the commercial financing to the prospective borrower. This must be labeled "Total Dollar Cost of Financing" in the disclosure.
  • The annualized interest rate, if applicable. This must be labeled "Annualized Interest Rate" in the disclosure.
  • A description of the funding and repayment process, including the frequency of payments and the amount of each payment. This must be labeled "Funding and Repayment Process" in the disclosure.
  • A description of prepayment policies. If the commercial financing includes prepayment penalties, the description must state how those penalties apply, using examples relevant to the transaction being negotiated. This includes any financing costs or fees that are required to be paid at the time the "loan" is retired or paid in full. This must be labeled "Prepayment Policies" in the disclosure.
  • Any collateral required as a condition of receiving the commercial financing. This must be labeled "Collateral" in the disclosure.

These disclosure requirements would apply to any "commercial financing," which means all of the following:

  • A commercial loan, as defined under the California Financing Law ("CFL");
  • Accounts receivable financing or factoring in which the total amount provided by that financing or factoring is $5,000 or more as part of an agreement requiring the business to pay the financer a portion of accounts receivable collected by the financer on behalf of the business or to sell those accounts receivable to the financer at a discount;
  • A cash advance to a business of $5,000 or more as part of an agreement requiring the business to repay the lender a portion of future receipts; and
  • A line of credit to a business of $5,000 or more.

The disclosure would have to be signed by all parties to the commercial financing before the transaction can be consummated. The bill does not include a CFL licensing requirement for factoring.

  Bill