I still remember when giving a commercial loan meant an in-person meeting. A business owner took a trip to the bank, brought in their paperwork, and got the go/no-go based on their interactions and materials. The only compliance demands? A few federal requirements for disclosure and fraud protection. (GBLA, FDICIA, Thrift and Bank Fraud Prosecution and Taxpayer Recovery Act, etc.)
Fast-forward to today, and finance executives have to navigate a maze of state-level mandates. How do you ensure documentation meets each state’s wording requirements? Deal with requirements that conflict with federal standards? Or ensure you constantly have compliance expertise in-house?
With a new era of (decentralized) corporate finance legislation, understanding the terrain isn’t just about avoiding penalties. It’s vital to managing risk and maintaining a strong brand reputation. Operational costs can quickly escalate if you don’t make your processes and technology “compliance-ready.”
Let’s break down what’s happening across the country, what’s coming, and what it means for you.
The State of the States: Laws on the Books and Yet to Come
Much of commercial lending compliance remains in the hands of the federal government. Nevertheless, many states have enacted their own laws to address commercial financing transactions. The objective: Protect borrowers, bring transparency to the process, and prevent brokers from swindling consumers.
Disclosure Laws
Currently, commercial finance disclosure laws (CFDLs) “take the cake” as the most popular. States with active CFDLs include:
- California via SB 1235 (enacted in 2018)
- New York through NEW 23 NYCRR 600 (started in 2023)
- Utah from Act SB183 (took effect 2023)
- Virginia 10VAC5-240-30 (began in 2022)
- Florida via Senate Bill 1624 (effective 2023)
- Georgia through Senate Bill 90 (effective 2024)
- Connecticut from its SB 1032 (started 2024)
- Kansas through Bill No. 345 (effective 2024)
And CFDLs are trending upward. States like Illinois, Maryland, and Missouri are pending or in the proposal phase. New Jersey is a funny case. They’ve tried to pass disclosure laws seven years in a row and can’t seem to get over the finish line.
Licensing Requirements
Some states also have laws where you need to be licensed in that specific state to offer commercial financing. These include: California, Connecticut, Utah, Missouri, and South Carolina.
Broker Conduct
Florida has an explicit law regulating broker conduct. Finance brokers can’t collect separate fees for facilitating a loan or credit line and must disclose their contact information to potential borrowers.
Usury Laws
There’s separate rules for usury (or capping the maximum interest rates you can charge). South Carolina, South Dakota, and Wisconsin, for instance, don’t have any limit. Virginia has no limit for loans above $5,000. Kentucky has no limit for loans above $15,000. And Rhode Island exempts loans over $500,000 for usury unless the borrower takes a mortgage on their personal residence.
Corporate Finance
Finally, on the corporate finance side, different states have different rules for structuring your company, issuing stock, and determining which entities can be used for various types of businesses. The Delaware General Corporation Law (DGCL) makes Delaware flexible to incorporate with limited rules.
What This Means for Lenders and Brokers
For corporate finance brokers and lenders, all these laws mean headaches. If you’re lucky, you might only operate in one state (hence, one set of rules). But anyone doing business across multiple states knows these aren’t just minor administrative updates. You must revamp how you operate, communicate with borrowers, and update your tech stack. Here’s what it means for you:
- Higher liability risk: More, disparate rules mean higher risks of fines for missed disclosure, overcharging interest, etc.
- Operational drag: There’s no one-size-fits-all operating procedures across locations. Whether it’s state-specific disclosures, rate changes in your loan origination software (LOS), lending policies, or communication requirements, every branch has its own admin burdens.
- More licensing: It’s not just obtaining and retaining a license from OCC, FDIC, or the Federal Reserve. Now you need to register with state authorities and play by their rules.
- Product and funding delays: When there’s a new law on the books, expect product launches, credit decisions, and application processing to move like molasses.
To put a positive spin on things, all these laws could be a growth opportunity for funding institutions. If you can “out-manage” your competitors in compliance, either through technology or a strategy, it could help you stand out as an efficient, transparent provider.
The Challenges for Corporate Finance Borrowers
While designed to protect them, borrowers can also expect nuances when seeking business capital.
All that disclosure print? Information overload. It could get tough to compare financing products, APR differences, and terms of service.
You also may fall victim to slower funding. Your lender needs to constantly assess their offerings and ensure it follows the state’s rules. Unfortunately, you’re at the tail end of that pipeline — not ideal if you need capital quickly to seize an opportunity.
And like many industries, new regulations can take out the little guys. Financiers may pull out of certain states if it makes sense. So you might have to “break up” with your favorite lender if they leave and get stuck with fewer options.
The View from the White House: Fair Banking for All Americans
Despite state efforts to increase regulation, the White House has stepped in with its own demands (though not necessarily for disclosure or licensing requirements).
Just recently, on August 7th, President Trump signed an executive order guaranteeing fair banking for all Americans. It intends to protect consumers and businesses from being denied lending based on political or religious beliefs. And as long as the business activities are lawful, lenders must ensure fair access to banking and loans.
There’s also language about “addressing unfair banking practices” and “upholding economic freedom.”
Stay Up-to-Date on Finance Legislation With Centrex
Your expertise is in commercial finance, not legislative tracking. Check out the Centrex blog to stay up-to-date on regulatory updates, baking industry trends, and where technology can help close funding deals faster.
And if you’re looking for an efficient, compliant way to manage loans and borrowers, the Centrex Software CRM is the final piece to keep you at the cutting edge of your industry.
Request a Demo to learn how a dedicated finance CRM, built for brokers and lenders, can help you overcome regulatory headaches and power you forward.
