On April 17, the Kansas Legislature signed SB 345, to become the most recent state to enact disclosure requirements for small business lenders.
The law’s requirements apply to “providers” which are defined as persons who consummate more than five commercial financing transactions with businesses located in Kansas in a calendar year. Before consummating a commercial financing transaction, the bill would require providers, for every commercial financing transaction, to disclose to the debtor business:
- The total amount of funds provided under terms of the financing agreement;
- The total amount of funds disbursed (if different amount of funds provided);
- The total amount to be paid to the provider;
- The total cost of the financing (determined by subtracting the funds disbursed from the total amount of payments);
- The manner, frequency and amount of each payment or, if payments will vary, the initial payment; and
- A statement of whether there are any costs or discounts associated with prepayment of the loan, including a reference to the section of the financing agreement that grants the debtor the right to prepayment.
- The bill does have two important exemptions. Financing transactions of less than $500,000 are exempt from the law’s requirements. Moreover, online lending platforms facilitating the extension of commercial credit through a depository institution licensed in the state are also exempt.
The law takes effect on July 1, 2024.
Putting It Into Practice: Kansas enacts this bill in the wake of a growing number other states introducing their own commercial financing disclosure laws (see our previous posts on such laws here, here, here and here). Disclosures required under the laws of other states do differ to varying degrees from the above Kansas law. To the extent that state commercial financing disclosures are not uniform, small business lenders would be wise assess whether individualized disclosures for each state in which they operate makes sense.