Missouri's New Commercial Financing Disclosure Law And Its Impact On Small Businesses And Lenders

Scope

The new law applies to “commercial financing transactions” which are broadly defined in the statute and include commercial loans, accounts receivable purchase transactions, and commercial open-end credit plans. The law also applies to any transaction where the proceeds are either provided to a business or are intended to be used to carry on a business. How will a lender know at the time of the transaction it needs to do disclosures if the borrower just received the funds and can use them in any manner of his choosing going forward? The statute has an answer! A provider can rely on a written statement of intended purpose by a business or individual at the time of the transaction. In other words, the lender can just get the borrower to promise in writing the loaned funds will only be used for personal, family or household needs and thus not require disclosures. There are several transactions exempt from the statute’s requirements. Loans secured by real property, leases, purchase money obligations, certain healthcare factoring transactions and transactions exceeding $500,000 are exempt. Depository institutions and affiliates, lenders regulated under the Farm Credit Act, motor vehicle dealers, dealer rental companies, licensed money transmitters and any provider who originates five or fewer transactions in Missouri are exempt.

Required Disclosures

The disclosures required under the new Missouri law are relatively straightforward and attempt to highlight the overall costs of certain loans and financial transactions relative to the benefits to the business. Specifically, the total amount of funds provided, the total amount of funds disbursed, the total of payments to the provider, the total dollar cost of the commercial financing transaction, the manner, frequency, and amount of each payment and whether there are any costs or discounts associated with prepayment must be disclosed before or at the time to the business. There is no form notice provided by the statute. The law takes effect either six months after the Division of Finance promulgates rules or on February 28, 2025, if the Division of Finance does not intend to promulgate rules.

Brokers

Brokers facilitating commercial financing transactions in Missouri now must register with the Division of Finance and maintain a $10,000 surety bond under the new law. The registration requires the broker to disclose certain business information along with any felony convictions of principals. It also requires payment of registration and renewal fees.

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