Commercial Financing in Utah: Legislative Change Coming
Utah recently enacted the Commercial Financing Registration and Disclosure Act (Senate Bill 183), which requires persons who provide certain commercial financing products to (1) register with the Department of Financial Institutions and (2) make certain disclosures in connection with each commercial financing transaction. Beginning January 1, 2023, a person cannot engage in a commercial financing transaction as a provider in Utah, or with a Utah resident, unless the person registers and maintains such registration with the Department. A registration or renewal must include, among other items, a brief description of the way the business is conducted if the person engages in commercial financing transactions in Utah, but does not maintain an office in the state. The Department will develop the form of registration.
Applicability of the pending change turns, among other things, on whether the institution is a “provider” involved in a “commercial financing transaction.” A “provider” means a person who consummates more than five commercial financing transactions in the state during any calendar year and includes a 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. A “commercial financing transaction” means a business purpose transaction (a) under which a person extends a business a commercial loan or a commercial open-end credit plan or (b) that is an accounts receivable purchase transaction. These requirements apply to a commercial financing transaction consummated on or after January 1, 2023.
The new law also requires, before consummating a commercial financing transaction, a provider to disclose the terms of the commercial financing transaction. For open-end credit, the provider must make the disclosures after any disbursement of funds that occurs after the parties consummate the commercial financing transaction, and no later than 15 days after the last day of the calendar month in which the disbursement of funds occurs.
The requisite disclosure includes:
- the total amount of funds provided to the business under the terms of the commercial financing transaction;
- the total amount of funds disbursed to the business under the terms of the commercial financing transaction, if less than the amount described above;
- the total amount to be paid to the provider under the terms of the commercial financing transaction;
- the total dollar cost of the commercial financing transaction, calculated by finding the difference between (1) the total amount of funds provided to the business under the terms of the commercial financing transaction and (2) the total amount to be paid to the provider under the terms of the commercial financing 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 under the commercial financing transaction, including a reference to the paragraph in the commercial financing transaction agreement that creates each cost or discount; and
- any amount of the funds deducted from the total amount of funds provided to the business under the terms of the commercial financing transaction that the provider pays to a broker in connection with the commercial financing transaction.
The commercial financing transaction agreement must include a description of the methodology for calculating any variable payment amount and the circumstances that may cause a payment amount to vary.