TSL Express Daily News

New York State Senator James Sanders, one of the driving forces behind New York’s new disclosure legislation which effects non-regulated lenders, has just proposed new legislation requiring mandatory licensing of certain non-regulated small business lenders and business brokers who do business with commercial enterprises located in the State of New York.

In summary, non-regulated lenders or business brokers engaged in  “making or soliciting”  “commercial financing products” to commercial enterprises located in New York State are to be required to be licensed by the State of New York if the loans or advances, including  even a single advance, is in the principal sum of $500,000 or below.

A “commercial financing product” is defined broadly as any advance of funds to a commercial enterprise made for the purpose of assisting the business with its capital needs and includes, but is not limited to:

(i)             Loans or lines of credit made to a commercial enterprise in the principal sum of $500,000. or less whether secured or unsecured.

(ii)           Any leasing transactions where the funds provided are in the principal sum of $500,000 or less

(iii)         Purchase transactions where a provider purchases accounts, intangibles, revenue or other actual or perceived assets of the business and any single advance or payment of the purchase price is in the principal amount $500,000 or less.

Exempted from the reach of this proposed legislation is:  (i) any “person” who makes or solicits five or few commercial financing products from businesses located in New York State within a 12- month period, (ii) any banking organization, federal credit union or insurance company and (iii) any “person” to the extent that such person is lending money and previously licensed pursuant to another applicable law of the State of New York.

“Making or Soliciting” is defined as applying equally to any party providing commercial financing products to small businesses and to any party who independently markets commercial finance products for providers of commercial finance products or is compensated by the provider of a commercial finance product even if the marketing is on behalf of an exempt lender, such as a federal or state banking organization. This definition also includes any entity providing indemnity or loss protection to an exempt lender for losses the exempt organization may incur and any entity that participates in or is a co-lender to a facility originated by an exempt organization if in the principal sum equals $500,000 or less.

While this proposed legislation has by its terms assigned to the New York Superintendent of Financial Services (“Superintendent”), the task of proposing detailed regulations as to the interpretation and enforcement of the statute prior to its effectiveness the proposed legislation does outline certain terms including:

1. There will be an application fee for the license and if the license is granted another fee for the license itself. The license fee, if the California lender’s license is any benchmark, will be substantial.
2. The applicant will be required to submit as a part of the application process an affidavit of  “financial solvency,” the contents of which will be determined by the Superintendent, but, among other things, must include a representation that the applicant will have not less than $50,000 in liquid assets during all times the lender or broker holds the license for the operation of its business.
3. Upon the filing of such application, the Superintendent must: (i) determine that the applicant and its officers, directors, members or partners (whichever is appropriate)  have the  “financial responsibility”, “experience” , “character”, and “general fitness” as to “commands the confidence of the community” and (ii) warrant that applicant will operate its business in an  “honest”, “fair” and “efficient” manner.
4. The licensee is responsible for filing an annual report concerning the operations of its business.
5. The Superintendent for the purpose of discovering violations or securing information may, at any time and as often as he may determine, investigate into the licensee’s business,  including examining the licensee books and records, files and accounts.
6.  A change of control will require re licensing by the Superintendent.

There are civil and criminal penalties for violating the proposed legislation. Specifically, any commercial financing product made by a person not licensed shall be void and the provider shall have no right to collect or receive any principal, interest, fees or charges and any officer, director, owner, member or partner (where applicable) who violates or participates in a violation is guilty of a misdemeanor.

Finally, no licensee shall take a confession or judgment or a power of attorney which allows for a confession of judgment.

SFNet’s Advocacy Committee is actively working with the Senator’s office on behalf of our membership on this proposal.