Federal Judge: Legal Challenge to California’s Commercial Financing Disclosure Law Has Merit, Orders SBFA Case to Proceed

A federal judge has ordered the Small Business Finance Association’s (SBFA) case against Clothilde Hewlett in her capacity as Commissioner of the California Department of Financial Protection & Innovation (DFPI) to proceed. On March 30, The Honorable R. Gary Klausner denied defendant’s motion to dismiss the claims that the State’s commercial financing disclosure law is both unconstitutional and preempted by the federal Truth in Lending Act (TILA).

The case, originally filed on December 2, 2022, argued, broadly speaking:

• That the regulations violate the First Amendment on the premise that they compel the group’s members to make inaccurate disclosures to customers while at the same time prohibiting members from engaging in communications that could be used to clarify or correct the required false or misleading information to customers.
• That APR is defined and governed at the federal level by TILA and that California’s own customized spin on it would only serve to confuse customers.

The Court has now ruled that these claims have been sufficiently alleged, allowing the SBFA the opportunity to prove its case.

Steve Denis, the Executive Director of the SBFA, told AltFinanceDaily that the win at this juncture was validation for what the organization has been saying for the past few years.

“I think [this victory] is really good news. It’s a lawsuit that the entire industry should be behind,” he said.

The outcome of the case could have far reaching effects. New York, for example, has enacted similarly misleading APR rules that are soon slated to go into effect while other states have contemplated following in its footsteps.

“I think if we win this lawsuit the APR argument is over,” Denis said.

To that end, anyone in the industry that would like further information about what’s taking place can contact Denis at sdenis@sbfassociation.org.

The full ruling can be viewed here.

BEFN: A New Networking Space for Black Equipment Finance Professionals

“The event’s theme, ‘forging inclusive excellence in equipment finance,’ set the tone for the group’s mission to advance diversity, equity, and inclusion (DEI) in the industry,” said George Parker, Co-CEO at VenSource Capital LLC.

Newly formed in January, the Black Equipment Finance Network (BEFN), is a non-profit organization focused on increasing the attendance of black professionals in the equipment finance industry. While providing network opportunities for people in the industry, the organization assists in promoting business collaboration, industry support and outreach, professional development, and Diversity, Equity and Inclusion (DEI) advocacy.

“I think the industry, given the mixer that we had last week in San Diego, is poised for [even more growth]. Many people showed up in support of what we’re looking to do,” said Lovern Gordon, National Sales Executive at Boston Financial & Equity Corp. “And that was a huge, huge, huge show of a vote of confidence that we’re headed in the right direction.”

The organization recently had their first inaugural mixer to kick off NEFA’s 4-day event, last week in San Diego. Filled with members and allies, the mixer dedicated a one-hour block to networking with people of color (POC).

“It was the most people that I and many others in the room have seen in terms of numbers for black people in the equipment finance industry in one space ever,” said Gordon.

For many POC, working in equipment finance can feel intimidating as the field is predominately a white-male led industry. The network is an all-around safe space for people that share in their likeness while being able to address issues of feeling left out of conversations or not feeling understood by their peers. The leadership team alongside Gordon (Secretary/Director), consists of George Park (President), Nancy Robles (Director), Kareem Jernigan (Treasurer/Director), Andre Olaofe (Director), and Eric McGriff (Director).

“This is a long overdue group of primarily black and people of color professionals in the equipment finance industry, that have just come together to form a small group within the industry to create an awareness of the black professional in the equipment finance industry,” said Andre Olaofe, President at Select Funding.

An active member of BEFN will typically attend monthly virtual meetings, have the option to be on panels, opportunity to come to regional and national events, advocate for laws and policies to improve within the industry, have access to the member directory, and mentorship.

“I’m on the steering committee,” said Cheryl Tibbs, CEO at Equipment Lease & Co. “The steering committee, we meet to set the agenda for the organization for our meetings. Just really to set the agenda for the group.”

The support from non-POC peers in the industry has been fantastic, Gordon explained. Several sponsors such as Dedicated Financial GBC, Wells Fargo Capital, North Mill Capital, and Wintrust Specialty Finance attended and donated, which contributed to pulling the mixer off. Tibbs noted the overwhelming response of non-black professionals that wanted to be involved who also saw a need for DEI within these organizations.

“The president of the National Equipment Finance Association, the board members of NEFA, the other members for funding sources, other brokers, all welcomed the group in San Diego, and came out to the mixer,” said Olaofe, “and were actively involved in at least sharing in the celebration of coming together and this inaugural mixer.”

New California Disclosure Rules Reduce Capital Available to Small Businesses

In a poll conducted by a leading trade association, since new CA disclosure rules were implemented in December 2022, 40% of respondents were found to be “no longer lending” to prospective borrowers who fall within the regulations’ threshold of less than $500,000. The poll was conducted by The Secured Finance Network (SFNet), an 80-year-old nonprofit with members representing the $4T U.S. secured finance industry. The new law, requiring sweeping financial disclosures, introduced by CA State Senator Steven M. Glazer in 2018, faced four years of strong opposition before being rolled out in December of 2022.

According to the poll, commercial finance companies would rather not lend to small businesses than comply with what they believe are “misguided and un-compliable” requirements. Mark Hafner, president and CEO of Celtic Capital Corporation, based in Calabasas, CA, said, “Unfortunately, we must now shy away from smaller deals (under the $500k threshold) as the disclosure requirements are extremely complicated to figure out and would require getting our attorneys and CPAs involved to ensure compliance. It’s just not worth the costs involved to fund a small deal anymore. The statute is not user friendly and, frankly, not representative of the true costs as there are numerous assumptions that have to be made to calculate the APR based on the state’s requirements. I honestly don’t think it was designed to meet the stated goal of the statute.”

Robert Meyers, president of Republic Business Credit, which does business with many California-based businesses, explained, “While the fines and penalties are clear under the regulations, the state has been unwilling to confirm our compliance or anyone else’s compliance. That fear is what has stopped 40% of our non-banks from doing business in the state, thus reducing access to capital for small- and medium-sized businesses. I expect this number to increase as time goes on. If the goal of this law was to better inform, it is actually doing the opposite as APR just doesn’t apply to our products.”

SFNet reports that its member companies provide “tens of billions” of capital annually in California to small businesses for essential working capital that funds everything from inventory, to work in process to payroll.

“Forty percent of billions is a large number,” said SFNet CEO, Richard D. Gumbrecht. “In attempting to find a one-size-fits-all solution to financial transparency, the State has created a complex set of requirements that misrepresent the actual cost of borrowing. Lenders are saying it’s not worth the cost and risk of complying. If this sample of 50 lenders is indicative of what we can expect, clearly that was not the intent of the legislation. And considering the demise of Silicon Valley Bank, it’s more important than ever that capital is not restricted in California.” The trade association is working with State legislatures to revise the statute. “Other states have found a simpler and more accurate way to protect small borrowers, and given the unintended consequences we are seeing, we are hopeful California will be receptive to these alternative approaches.”

To demonstrate how vital small businesses are to the U.S. economy, and the importance of not curtailing funding, consider these statistics: According to the U.S. Small Business Association (SBA), small businesses of 500 employees or fewer make up 99.9% of all U.S. businesses and 99.7% of firms with paid employees. Of the new jobs created between 1995 and 2020, small businesses accounted for 62%—12.7 million compared to 7.9 million by large enterprises. A 2019 SBA report found that small businesses accounted for 44% of U.S. economic activity.

About Secured Finance Network

Founded in 1944, the Secured Finance Network (formerly Commercial Finance Association) is an international trade association connecting the interests of companies and professionals who deliver and enable secured financing to businesses. With more than 1,000 member organizations throughout the U.S., Europe, Canada and around the world, SFNet brings together the people, data, knowledge, tools and insights that put capital to work. For more information, please visit SFNet.com.

Media Contact:
Michele Ocejo, Director of Communications
Secured Finance Network
mocejo@sfnet.com, 551-999-5283

All Registered Sales-based Financing Providers in Virginia (List)

Is the revenue-based financing provider you do business with registered to operate in Virginia? On July 1, 2022, Virginia’s commercial financing disclosure law went into effect and with that the necessity to register one’s business. As of March 8, 2023, this is the official list of registered sales-based financing providers:

• Advance Servicing Inc.
• Accredited Business Solutions LLC dba The Accredited Group
• Advance Funds Network LLC dba Advance Funds Network
• AdvancePoint Capital LLC dba advancepoint
• Ally Merchant Services LLC
• Alpine Funding Partners, LLC
• Business Capital LLC
• Byzfunder NY LLC dba Tandem dba Nano-FI
• Bridge Capital Services, LLC
• CFG Merchant Solutions, LLC
• Clarify Capital II LLC dba Clarify Capital
• Cloudfund VA LLC dba Cloudfund LLC
• Capflow Funding Group Managers LLC
• Clear Finance Technology (U.S.) Corp. dba Clearco
• Coast Premier LLC dba Coast Funding
• Commercial Servicing Company, LLC
• Corporate Lodging Consultants, Inc.
• Crown Funding Source LLC dba Crown Funding Source
• Diesel Funding LLC
• Direct Capital Source Inc.
• Dealstruck Capital LLC
• EBF Holdings, LLC
• Essential Funding Group Inc
• Errant Ventures LLC
• FC Capital Holdings, LLC FundCanna
• Fidelity Funding Group LLC
• Front Capital LLC
• Finova Capital, LLC
• Fintegra, LLC
• First Data Merchant Services LLC
• FleetCor Technologies Operating Company, LLC
• Flexibility Capital Inc.
• Fora Financial East LLC
• Forward Financing LLC
• Fox Capital Group Inc.
• Fundamental Capital LLC
• Funding Metrics, LLC dba Quick Fix Capital
• Good Funding, LLC
• Granite Merchant Funding, LLC
• Invision Funding LLC
• Itria Ventures LLC
• Jaydee Ventures, LLC dba 1 West Capital dba 1 West Commercial
• Kapitus LLC
• Knight Capital Funding III, LLC
• Lexington Capital Holdings Ltd
• LG Funding LLC
• Legend Advance Funding II, LLC dba Legend Funding
• Liberis US Inc.
• Libertas Funding, LLC
• Liquidibee 1 LLC dba Liquidibee LLC dba Altfunding.com
• Loanability, Inc.
• Millstone Funding Inc.
• National Funding, Inc.
• Nav Technologies, Inc.
• Pearl Alpha Funding, LLC
• Pearl Beta Funding, LLC
• Pearl Delta Funding, LLC
• Proto Financial Corp.
• PWCC Marketplace, LLC
• Parafin, Inc.
• PayPal, Inc.
• Payability Commercial Factors, LLC
• Pinnacle Business Funding LLC dba Custom Capital USA dba EnN OD Capital
• Platform Funding LLC
• Prosperum Capital Partners LLC dba Arsenal Funding
• QFS Capital LLC
• RFG USA Inc.
• Rival Funding, LLC
• Riverpoint Financial Group Inc.
• Rocket Capital NY LLC
• ROKFI LLC
• Ruby Capital Group LLC
• Rapid Financial Services, LLC
• Reliant Services Group, LLC
• Retail Capital LLC dba Credibly
• Revenued LLC
• Rewards Network Establishment Services Inc.
• Secure Capital Solutions Inc.
• Sky Bridge Business Funding, LLC
• SMB Compass LLC dba SMB Compass
• Santa Barbara Tax Products Group, LLC
• SellersFunding Corp.
• Sharpe Capital, LLC
• Shine Capital Group LLC
• Shopify Capital Inc.
• Shore Funding Solutions Inc.
• Streamline Funding, LLC
• Stripe Brokering, Inc.
• The LCF Group, Inc.
• United Capital Source Inc.
• Upfront Rent Holdings LLC
• Upper Line Capital LLC
• Vader Servicing, LLC
• Velocity Capital Group LLC
• Vivian Capital Group LLC
• Vox Funding, LLC
• ZING Funding I, LLC