California recently enacted Senate Bill 1235, which amends the California Financing Law to add additional disclosure requirements for commercial loans of $500,000 or less (which are most often used by small businesses), but excluding commercial financing transactions secured by real property.
When making a specific offer to a borrower of certain commercial loans, a lender subject to these disclosure requirements must disclose: the total amount of funds provided; the total dollar cost of the financing; the term or estimated term; the method, frequency, and amount of payments; a description of prepayment policies; and the total cost of the financing expressed as an annualized rate (with this last requirement phasing out on January 1, 2024). Such a lender must obtain the borrower’s signature on the disclosure before consummating the loan. The law also requires comparable disclosures for asset-based lending and factoring (lending against a company’s accounts receivable).
The new law does not apply to depository institution lenders or commercial financing transactions secured by real property, along with a few other limited exceptions.
The law takes effect on January 1, 2019.
For a copy of the new law, click here.