Merchant Cash Advance providers, commercial litigation funders, online SMB lending platforms and other nonbank small-business lenders, take note: Following the lead of California and New York, Utah is now the third state to enact disclosure requirements for commercial lending transactions. In contrast to the otherwise similar California and New York laws, the Utah law does not require disclosure of an Annual Percentage Rate and requires commercial lenders to register as commercial loan providers with the Utah Department of Financial Institutions. Factoring transactions are excluded. Several similar laws are pending in various other states.
The law will apply to “providers” of “commercial loans” made on or after January 1, 2023. A “provider” includes anyone who “consummates more than five commercial financing transactions in the state during any calendar year,” and a “commercial loan” is expressly defined as including accounts receivable purchase transactions. Notably, the definition of a “provider” also includes any person who “under a written agreement with a depository institution, offers one or more commercial financing products provided by the depository institution via an online platform that the person administers.”
However, the new law does not apply to transactions of more than $1 million, depository institutions and their subsidiaries, entities regulated by a federal banking agency, licensed money transmitters, commercial financing transactions that are secured by real property, purchase money obligations, open-ended commercial loans for $50,000 or more to a motor vehicle dealer or auto rental company, or commercial loans in connection with the sale of a product or service that such person, or that person’s affiliate, manufactures, licenses or distributes.
Commercial lenders will be required to disclose the following:
- The total amount of funds provided.
- The total amount of funds disbursed to the borrower, if less than the amount provided.
- The total amount to be paid to the commercial lender.
- The total dollar cost of the transaction.
- The manner, frequency and amount of each payment or, if the amount of each payment may vary, “the manner, frequency, and estimated amount of the initial payment.”
- A statement of whether there are any costs or discounts associated with prepayment of the commercial loan, including a reference to the section of the agreement that creates such cost or discount.
- If any portion of the borrower’s loan was paid to a broker rather than to the borrower, the amount paid to the broker must be disclosed.
- A description of the methodology that will be used to calculate any variable payment amount and the circumstances that may cause variations in the payment amount.
For open-ended commercial loan transactions, these disclosures must be made prior to the consummation of the open-ended loan, and again within 15 days after the end of each month during which funds are disbursed under the open-ended loan.
Providers of commercial loans will be required to register via the Nationwide Multistate Licensing System and Registry beginning January 1, 2023.