New York Senator James Sanders Jr. recently proposed Senate Bill 1450A (“S1450”), which would require those making or soliciting “commercial financing products” in New York State to obtain a license and comply with specified requirements.
Section 363-A of proposed S1450 defines a “commercial financing product” as any advance of funds to a commercial or business enterprise made for the purpose of assisting the business with its capital needs. This definition explicitly includes, but is not limited to, transactions in the amount of $500,000 or less involving certain loans, receivable purchases, merchant cash advances, and lease transactions.
Additionally, § 363-B of proposed S1450 exempts the following from the license requirement:
- Any person who makes or solicits five or fewer commercial financing products within any twelve month period;
- Any banking organization;
- Any federal credit union;
- Any insurance company;
- Any purchases of the ownership, in whole or part, of a business or commercial enterprise; and
- Certain persons authorized by other applicable New York law to make or solicit commercial financing products.
Section 363-D provides that licenses are perpetually effective until surrendered, revoked, or suspended. Should a licensee seek to add a new location, change their address, or effectuate a change of control, sections 363-C, E, F respectively impose necessary approval processes. Pursuant to § 363-C, potential licensees must submit an application containing:
- A list of locations where the applicant seeks to make or solicit commercial financing products;
- The licensing and investigation fees that the superintendent will prescribe for each proposed location;
- An affidavit of financial solvency demonstrating that the applicant meets the capitalization and access to credit requirements that the superintendent will prescribe.
Pursuant to § 363-C, the superintendent will grant a license if the applicant can demonstrate that:
- The applicant commands the confidence of the community and warrants belief that the business will be operated honestly, fairly, and efficiently;
- The applicant has $50,000 available in liquid assets per proposed location for the operation of business; and
- The applicant otherwise satisfies the licensing regulations prescribed by the superintendent as the superintendent is empowered to do so by § 363-M.
According to § 363-L, all commercial financing products made by a person without a license are void. Also according to § 363-L, violations of proposed S1450 may constitute a misdemeanor. To further ensure compliance, § 363-I imposes record keeping requirements on licensees, including an annual report due to the superintendent on or before April 1st. Similarly, § 363-H gives the superintendent broad examination powers over licensee books and facilities.
Upon showing good cause, the superintendent may suspend a license for a period of up to 30 days pending investigation without notice or hearing. Section 363-G specifies the grounds for suspension or revocation of a license, including:
- Failure to pay any sum of money lawfully demanded by the superintendent;
- Failure to comply with any demand, ruling, or requirement of the superintendent within a reasonable period of time;
- Violating any provision of the proposed bill; and
- The existence of facts or conditions that would have warranted denial of license if it had existed at the time of the original application.
Should S1450 become law, its provisions would become effective 180 days thereafter. The bill is presently in a Senate committee and has yet to be heard by either house of the New York legislature. Importantly, we note that an entity engaged in any business activities covered by S1450 should consult the full text of S1450 to determine how the bill would affect its business operations.