State Business Financing Disclosure Requirements Present Emerging Challenge for Fintechs and Lenders

Discover the consequences of non-compliance with new disclosure laws for financing companies and the challenges of navigating state requirements.
Will TumultyFebruary 21, 202411 min

In January, new commercial financing disclosures for Georgia and Florida went into effect, adding to the growing number of U.S. states enacting state-specific regulatory requirements for companies engaging in small business financing. These laws have become a trend among states and intend to standardize disclosures for small business commercial financing, enabling transparency of various financing products and their terms. This encourages small business financing applicants to make informed decisions during the loan application process or for other forms of commercial financing. 

Other states that have enacted commercial financing disclosures include California, New York, Utah, and Virginia. Although these laws share a similar purpose, each has several differences lenders must be prepared to navigate. For instance, New York and California are the only two states to require funders to disclose an APR or estimated APR, whereas disclosure laws in Georgia, Florida, and Utah require funders to disclose the total dollar cost of the financing. 

Providing small businesses with capital is essential for them to maintain their operations and stimulate growth. Despite the aim of these laws being to support and protect small businesses, differing regulations have led to some providers pulling back from certain markets and product offerings. Specific reasons for lenders pulling back include vague requirements, unclear definitions, differing regulatory regimes, and rigid civil penalties. 

Financing companies that fail to comply with new disclosure laws can face expensive fines and other legal ramifications, placing a strain on those who are not equipped to adequately monitor and comply with different requirements from state to state. According to Bloomberg Law this is causing some SMBs to have fewer avenues for accessing vital working capital. 

The situation won’t get easier as several other states are considering passing disclosure requirements of their own. As a result, fintechs and financing companies are facing the growing challenge of monitoring and remaining compliant with requirements across various states. Finding a way to meet this challenge will be mission-critical for lenders, as small businesses are the lifeblood of the U.S. economy, accounting for nearly 99.9% of all businesses in the nation.

Financial institutions must carefully consider options that ensure they maintain compliance without stunting their growth potential. Fintech, commercial lenders, and SMB financing companies can invest and develop their internal legal teams and compliance departments. This would ensure their lending operations comply with each state’s laws. An alternative option would be for lenders to employ the services of an established national Lending-as-a-Service provider to handle the responsibility and seamlessly integrate the delivery of compliant disclosures into the lender’s existing systems and processes. The ideal provider is equipped to support multiple products with differing payment frequencies, fees, and rate structures.  

Today’s lending landscape is constantly experiencing change, regulatory compliance being a prime example of the market’s transitory nature. With more regulatory change on the horizon, lenders and finance companies must step up and shoulder the weight of compliance.Being able to monitor and quickly adapt to regulatory changes at a state level will help serve business customers across the country.

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Tyler Brown, Will Tumulty, serves as CEO of Rapid Finance

Will Tumulty serves as CEO of Rapid Finance, a financial technology company and the one of the largest providers of working capital to small businesses in the United States.

Will Tumulty


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