Show-Me the Terms: Missouri’s New Financing Disclosure Law

Any lender which is not a depository institution and is providing loans to businesses located in Missouri needs to be aware of Missouri’s new commercial financing disclosure laws which will, unless Missouri’s Division of Finance (the “Division”) publishes rules further implementing such disclosure law, become effective February 28, 2025.

Missouri became the ninth state (joining California, Utah, Florida, Georgia, Virginia, New York, Connecticut, and Kansas) to publish special disclosure laws regulating commercial lenders when it passed the Commercial Financing Disclosure Law memorialized under Section 427.300 of the Missouri Revised Statutes (the “Disclosure Law”). The Disclosure Law regulates the continued emergence of “non-traditional” lenders providing debt capital to small businesses, either through an online broker or from a finance company directly. This emergence has coincided with the growth of private credit provided by private equity groups and venture funds who are adding debt products to their offerings.

The Disclosure Law requires brokers who sell these loans to be registered with the Division and lenders who provide these loans to clearly disclose their terms. Most “traditional” lenders who provide large commercial financing are exempted, including depository institutions. However, there are instances where providers of large-scale commercial financing will need to comply with the Disclosure Law for their smaller loans.

First, Brokers who arrange and sell these loans must be registered with the Division. A “Broker” under the Disclosure Law includes only those persons who “for compensation” or the “expectation of compensation” obtain a binding offer for a loan from a third party and communicate that offer to a business located in Missouri. Regulated brokers must register with the Division, renew their registration annually prior to January 31 of each year, and obtain a surety bond of $10,000 in favor of the State of Missouri.

Second, the Disclosure Law requires “Providers” of commercial financing to include specific disclosures at or prior to the closing of regulated loans. The disclosures must include:

• the total amount of loan funds, labeled as “Total Amount of Funds Provided”;
• the amount disbursed if less than the total amount of the loan, labeled as “Total Amount of Funds Disbursed”;
• the total amount to be paid to the loan provider, labeled as “Total of Payments”;
• the total dollar cost of the loan, calculated as the difference between the total amount of the payments the borrower is required to make to the provider and the total amount of funds the borrower received from the provider, labeled as “Total Dollar Cost of Financing”;
• the manner, frequency and amount of loan payments, labeled as “Payments”, or if payment amounts potentially vary, then an estimated initial loan payment may be included alongside the manner and frequency of payments, labeled as “Estimated Payments”;[1] and
• a statement detailing whether any costs or discounts are associated with prepayment of the loan facility including a cross reference to the section(s) of the loan agreement detailing those prepayment terms, labeled as “Prepayment”.

The Disclosure Law expressly excludes from its requirements:

• any loan provider that is:
  • a depository institution or a service corporation regulated by a federal banking agency that is servicing a depository institution;
  • an entity regulated under the federal Farm Credit Act;
  • an entity licensed as a money transmitter; or
  • an entity that provides five or fewer commercial loans to businesses in Missouri during any 12-month period;[2] and
• any loan that is:
  • secured by real property;
  • a lease;
  • a purchase money obligation;
  • greater than $50,000 if the borrower is a motor vehicle dealer, vehicle rental company, or an affiliate of either;
  • a factoring transaction or purchase of accounts receivable owed to a healthcare provider related to personal injury debts; or
  • greater than $500,000.

The Disclosure Law will often apply to finance companies and financial technology companies, but it can also apply to providers of larger credit products who are not depository institutions and do not meet any of the Disclosure Law’s other exemptions, including private equity groups, mezzanine financing providers, private credit funds, and venture capital groups. If a non-exempted lender provides more than five loans to businesses in Missouri during any 12-month period, regardless of those loans’ amounts or collateral, then each of the lender’s non-regulated loans (i.e., each loan that is $500,000 or less, not secured by real estate and does not qualify for any exemptions) must comply with the Disclosure Law.

Although the Disclosure Law (absent the Division’s promulgation of implementing regulations) does not provide specific requirements for how to comply, lenders subject to the Disclosure Law should take steps now to ensure the disclosures are obvious, not “hidden” within the loan documents, and are acknowledged by the borrower. A simple way to do this would be to have a stand-alone page summarizing the required disclosures, the disclosures’ text all capitalized, and the borrower sign the summary confirming they received, understand and acknowledge all of the disclosures. 

Liability for failing to comply with the Disclosure Law is limited to fines from the Missouri Attorney General, with initial violations allowing fines of $500 per incident with a total aggregated limit of $20,000, and after the Attorney General notifies the loan provider or broker that it has violated the Disclosure Law, the fines increase to $1,000 per incident with a total aggregated limit of $50,000. The Disclosure Law expressly notes that violations do not impact the enforceability of the underlying loan documents, and the creation of the Disclosure Law does not give borrowers a private right of action against a loan provider or broker based on violations of the statute as the Attorney General has the exclusive right to enforce the statute.

If you have any questions regarding the Disclosure Law or how to comply with it, please contact a member of Lewis Rice’s Lending and Finance Group.