Missouri is the latest state to enact a disclosure requirement for commercial financing, joining the growing number of states that have done the same. California, New York, Utah, and Virginia were the first states to pass some form of commercial financing disclosure law, followed by Connecticut, Florida, Georgia, and Kansas.

The Missouri Commercial Financial Disclosure Law will require a commercial financing provider to disclose the terms of a commercial financing transaction to a business before or at the time of consummating the transaction. Only one disclosure is required for each commercial financing transaction. The law appears to be modeled after similar commercial disclosure laws in Utah and Georgia, and it takes effect either six months after the Missouri Division of Finance promulgates rules implementing the law or on February 28, 2025, if the Division of Finance does not intend to promulgate rules. The law may be enforced by the Missouri attorney general and specifies fines for non-compliance.

Scope and Application of the Law

Like other states’ laws, Missouri’s disclosure requirement will apply to “commercial financing transactions,” which broadly applies to different types of commercial loans. In addition, the law extends to accounts receivable purchase transactions, which are broadly defined as a transaction in which a business forwards or otherwise sells to a provider all or a portion of the business’s accounts or payment intangibles at a discount to their expected value. This would likely include factoring transactions and revenue- or sales-based purchase transactions (e.g., merchant cash advances).

Exempt from the commercial financing disclosure requirements are, in part, depository institutions and their subsidiaries and affiliates; service corporations to depository institutions (with certain limitations); lenders subject to the federal Farm Credit Act; and providers that consummate no more than five commercial financing transactions in Missouri in a twelve-month period. Also exempt are commercial financing transactions that are (1) secured by real property; (2) a lease; (3) a purchase money obligation (with some requirements); or (4) of more than $500,000.

The statute defines provider, in part, as “a person who consummates more than five commercial financing transactions to businesses located in [Missouri] in a calendar year.” A provider also includes a person who enters into a written agreement with a depository institution to arrange for the extension of a commercial financing transaction by the depository institution to a business via an online lending platform administered by the person. Given that depository institutions are exempt from the requirements of the law, companies with online lending platforms that partner with depository institutions to offer commercial financing to businesses may be responsible for furnishing the commercial financing disclosures.

Disclosure Requirement

The disclosures must state the following in connection with each commercial financing transaction:

• The total amount of funds provided
• The total amount of funds disbursed
• Total of payments to the provider
• Total dollar cost of the commercial financing transaction
• Manner, frequency, and amount (or estimated amount) of each payment
• Whether there are any costs or discounts associated with prepayment

For a commercial financing facility, only one disclosure is required. Such disclosure can be based on an example of a transaction that could occur under the agreement.

A commercial financing facility is a provider's plan for purchasing multiple accounts receivable from the recipient over a period of time pursuant to an agreement that sets forth the terms and conditions governing the use of the facility. For example, if the provider were purchasing a business's invoices through a factoring agreement that would allow the business to sell various invoices to the provider from time to time, the provider would only need to give one disclosure, at the beginning of the transaction, based on an example, instead of giving a disclosure with each invoice purchase.

Currently No Specific Disclosure Form or Template

The law does not specify a particular form or template for providing these disclosures or require the disclosures to be signed by the recipient. But, as noted above, the Division of Finance has authority to set rules implementing the law and could prescribe that a particular form or template be used.

Broker Registration

The law also requires brokers to register and file a bond with the Division of Finance. A broker is any person who, for compensation or the expectation of compensation, obtains a commercial financing transaction or offer for a commercial financing transaction from a third party that would, if executed, be binding upon that third party and communicates that offer to a business in Missouri.

Takeaways

Companies offering commercial financing in Missouri will need to wait until the Division of Finance announces whether it will promulgate rules to implement the disclosure law. Under the Division of Finance’s rulemaking authority, it might specify a form or template that must be used for the disclosures. If the Division of Finance does not issue rules, the law will become effective on February 28, 2025.

Missouri is the ninth state to enact commercial financial disclosure laws, and other states may be join this group. As we have written in our prior alerts, a number of states have pending bills on commercial financing disclosures, including Illinois and Maryland. Moreover, California is contemplating a registration requirement for commercial financing providers and brokers. Commercial financing remains a legislative and regulatory priority for states.