Merchant cash advance providers, commercial litigation lenders, SME online lending platforms, and other non-bank small business lenders, take note: like California and New York, Utah is now the third state to enact disclosure requirements for commercial lending transactions. Unlike otherwise similar California and New York laws, Utah law does not require the disclosure of an annual percentage rate and requires commercial lenders to register as commercial loan providers with the Department Utah financial institutions. Factoring operations 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 “conducts more than five commercial finance transactions in the state in a calendar year ” and a “commercial loan”. Loan” is expressly defined to include Accounts Receivable purchase transactions. Notably, the definition of “provider” also includes any person who “under a written agreement with a deposit-taking institution, offers one or more commercial financing products provided by the deposit-taking institution via an online platform that it administers”.
However, the new law does not apply to transactions over $1 million, depository institutions and their subsidiaries, entities regulated by a federal banking agency, licensed money service companies, commercial financing secured by real estate, purchase obligations, terminated commercial loans of $50,000 or more to a motor vehicle dealership or car rental company, or commercial loans related to the sale of a product or service that that 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 prepaying the commercial loan, including a reference to the section of the agreement that creates those costs or discounts.
- If a 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 the payment amount to vary.
For open-ended commercial loan transactions, these disclosures must be made prior to consummation of the open-ended loan, and again within 15 days of the end of each month in which funds are disbursed under the open-ended loan. indefinite period.
Commercial loan providers will be required to register through the National Multistate Licensing System and Registry beginning January 1, 2023.