On September 30, 2018, California Governor Jerry Brown signed into law SB 1235 (the Act), which requires disclosures of key terms in connection with certain commercial financing by non-banks and could impact bank/non-bank arrangements as well. With the passage of the Act, California became the first state to require consumer-style disclosures for commercial financing. The Act is intended to facilitate comparisons of financing options by recipients of covered financing offers. It establishes a general framework for the disclosure requirements, but requires the California Department of Business Oversight (DBO) to establish the details through the adoption of implementing regulations. The Act becomes effective once the DBO issues final regulations.

SCOPE OF THE ACT -

Although the Act has been characterized as a small-business loan disclosure law, it is actually the size of the financing offer, rather than the size of the business seeking financing, that triggers the disclosure obligations. Specifically, the Act applies to commercial financing offers of $500,000 or less to entities in California by any entity that extends a specific offer of commercial financing, including non-depository institutions that arrange commercial financing as part of a bank partnership arrangement. Thus, the Act applies more broadly than the existing California Financing Law (CFL) in imposing disclosure obligations on non-bank partners, such as online lending platforms, that currently are not covered by the CFL.