Another State Passes a Commercial Financing Disclosure Law

The state of Missouri has passed the Commercial Financing Disclosure law, Section 427.300 of Missouri Senate Bill 1359, part of a national trend to enact legislation intended to protect small businesses by mandating such disclosures, writes attorney Stewart Bogart in his article about the Missouri law. 

Among the requirements is that lenders disclose to commercial borrowers the total cost of the transaction, the manner, frequency, and amount of each payment, and any costs or discounts associated with prepayment. 

The law applies to commercial financing transactions “broadly defined,” Bogart notes. It includes commercial loans, accounts receivable purchase transactions, commercial open-end credit plans, or any transaction “where the proceeds are either provided to a business or are intended to be used to carry on a business.”

There are also numerous specified exceptions, including loans secured by real property, leases, purchase money obligations, certain healthcare factoring transactions, and transactions exceeding $500,000. Also exempt are 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 the state of Missouri. 

The law also imposes certain requirements on brokers who facilitate commercial financing transactions. 

In cases where the lender believes it is exempt from the disclosure requirements and wants to protect itself, the law says that the lender may obtain a written statement from the borrower, declaring, for example, that the funds will be used for personal or family needs. 

The Commercial Financing Disclosure law will take effect either six months after Missouri’s Division of Finance promulgates rules or on February 28, 2025, if the agency does not intend to promulgate rules.