Commercial Lending Licensing

For decades, commercial lending operated in a relatively unregulated environment compared to consumer lending. The prevailing assumption was that businesses, particularly their owners and managers, possessed the sophistication to evaluate credit products without the protections afforded to individual consumers. That assumption is being challenged.

The growth of alternative commercial lending, including online lending platforms, merchant cash advance providers, and revenue-based financing companies, has prompted states to reconsider the regulatory framework for commercial credit. Concerns about transparency, aggressive marketing practices, and the potential for small business owners to take on unaffordable debt have driven a wave of new legislation.

California, New York, Utah, Virginia, and other states have enacted or are considering commercial lending disclosure and licensing requirements. These laws generally focus on providing small business borrowers with standardized cost-of-credit disclosures similar to those required in consumer lending. Some states are going further, requiring commercial lenders to obtain specific licenses before originating business loans or advances.

Different commercial lending products may face different regulatory treatment depending on the state and the specific product structure.

One of the most significant regulatory developments in commercial lending is the emergence of state-mandated disclosure requirements for small business financing. These disclosure laws represent a fundamental shift in how states approach commercial lending regulation.

California's SB 235, New York's commercial financing disclosure law, and similar statutes in other states require commercial lenders and financing providers to disclose the total cost of financing, the annual percentage rate (or estimated APR for products without fixed payment schedules), and other key terms in a standardized format. These requirements are modeled in concept on consumer lending disclosures but adapted for commercial products.

For commercial lenders operating nationally, these disclosure requirements create operational complexity. Each state may have different disclosure templates, calculation methodologies, and triggering thresholds. Lenders generally need to build systems that generate state-required disclosures for each state, and the disclosures are generally required at specific points in the origination process. Cornerstone helps commercial lenders understand their disclosure obligations and implement state-required processes.

Cornerstone helps commercial lenders navigate a regulatory environment that is changing more rapidly than any other segment of the lending industry. Our team monitors legislative developments across all 50 states and maintains current knowledge of both enacted requirements and pending legislation.

We work with commercial lenders of all types, including traditional business lenders, fintech lending platforms, merchant cash advance providers, and equipment finance companies. Our services include regulatory analysis to determine which state requirements apply to your specific products, license applications where required, disclosure filings guidance, and ongoing monitoring of new legislation that could affect your operations.

For commercial lenders that are still evaluating the regulatory landscape, Cornerstone provides strategic guidance on how to structure operations and filings programs in anticipation of continued regulatory expansion. Preparing now for requirements that are likely to come can help commercial lenders avoid the disruption of scrambling to comply after new laws take effect.