There have been significant legislative and regulatory developments over the past few years that commercial lenders, lessors, brokers, and alternative finance providers need to know about. If your business encompasses more than one state, you may find it extremely difficult to navigate the national landscape, since every state has its own rules and regulations.
It would be cumbersome and potentially overwhelming for this article to address all the details and minutiae of the licensing and disclosure requirements in every state. Instead, this series of articles will simply outline whether each state has licensing and/or disclosure requirements. If the answer to either question is yes, and you plan on doing business in that state, you would be well-advised to get more information on what exactly needs to be done to be in compliance. Penalties for non-compliance can be quite severe.
ALABAMA:
License: No.
Disclosures: No.
ALASKA:
License: Not for transactions over $25k, or less than $25k if the interest rate is not usurious.
Disclosures: No.
ARIZONA:
License: No.
Disclosures: No.
ARKANSAS:
License: No.
Disclosures: No.
CALIFORNIA:
License: Yes. California has by far the most comprehensive and strictest licensing structure in the country. The application process is lengthy and complicated, although there are quite a few exemptions. If you are a broker or lender, however, and you are not expressly exempt from licensing, you could face substantial penalties from the Department of Financial Protection and Innovation. The intricacies of the licensing laws are too lengthy to outline in this article.
Disclosures: Yes. California was the first state, a pioneer of sorts, to enact commercial finance disclosure laws. In many ways it is the model followed by other states. Similar to the state’s licensing laws, the disclosure rules and regulations are comprehensive and very detail oriented. Accordingly, the details are beyond the scope of this article.
COLORADO:
License: No.
Disclosures: No.
CONNECTICUT:
License: Yes. While perhaps not as cumbersome as the licensing rules in California, Connecticut does require that commercial financing providers and brokers register with the Department of Banking. This also applies to sales-based financing transactions.
Disclosures: Yes, for transactions up to $250,000.
DELAWARE:
License: No.
Disclosures: No.
FLORIDA:
License: No.
Disclosures: Yes, for transactions up to $500,000.
The laws that create these obligations are often abstruse. In my opinion, if you are serious about succeeding (and remaining) in the commercial finance industry, you absolutely need to make sure you have competent professional advice to ensure compliance with the laws of those states in which you intend to do business. As stated above, the penalties can be brutal.
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