On April 5, the Georgia legislature sent SB 90 (Act) to Governor Kemp for signature. The Act aims to amend Chapter 1 of Title 10 of the Georgia Code to require commercial financing disclosures.
What Is A Commercial Financing Transaction Under SB 90?
SB 90 imposes requirements related to “commercial financing transactions.”
Under the Act, a “commercial financing transaction” means a business purpose transaction under which a person extends a business a commercial loan or a commercial open-end credit plan or that is an accounts receivable purchase transaction.
A “business purpose” transaction is one where the proceeds that a business receives are provided to the business or intended to be used to carry on the business.
Who Does SB 90 Apply To?
Under the Act, a provider is a person who consummates more than five commercial financing transactions in the state during any calendar year. A provider also 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.”
SB 90 has exemptions for federally insured financial institutions, providers with no more than five commercial financing transactions in 12 months, commercial financing transactions secured by real estate, commercial financing transactions of more than $50,000 to motor vehicle dealers, and commercial financing transactions of more than $500,000.
What Are The Disclosure Requirements?
SB 90 requires disclosure of the following:
- 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 as a result of any fees deducted or withheld at disbursement, any amount paid to the provider to satisfy a prior balance, and any amount paid to a third party on behalf of the business;
- The total amount paid to the provider;
- The total dollar cost of the commercial financing transaction, calculated by finding the difference between the total amount of funds provided and the total amount paid by the provider;
- The manner, frequency, and amount of each payment. If the payment is variable, the manner, frequency, and estimated amount of the initial payment; and
- A statement of whether there are any costs or discounts associated with prepayment.
The disclosure requirements apply to any commercial financing transaction consummated on or after January 1, 2024.
What Are The Broker Requirements?
Under SB 90, a broker means a person who, for compensation, arranges a commercial financing transaction between a third party and a business in the state.
The Act prohibits any broker from assessing or soliciting an advance fee from a business to provide services as a broker. The Act would not prohibit a broker from soliciting a potential business to pay for actual services necessary to apply for a commercial financing transaction, including, credit checks or appraisals, where such payment is made by check or money order payable to an independent third-party.
The Act further prohibits brokers from making false or deceptive representations in its business dealings.
What Remedies Apply?
The Act provides that the Attorney General may receive and act on complaints received under the Code section. The Act further provides for monetary penalties. No private right of action exists under the Act.
Recently, multiple states have had disclosure regulations for commercial financing transactions either enacted (see discussions on New York and Utah) or proposed (see discussions on Missouri, Illinois, Florida, and Connecticut). Troutman Pepper will continue to monitor and report on developments in this area.