On July 1, 2022, Virginia's new sales-based financing disclosure law went into effect. Disclosures include the total amount of the sales-based financing, and the disbursement amount, if different from the financing amount, after any fees deducted or withheld at disbursement. The law focuses on transactions repaid as a percentage of sales or revenue, in which the payment amount is dependent upon the recipient’s sales volume or revenue. The new law also applies to transactions that have a set payment with a periodic "true up" mechanism to bring the amount paid into line with the agreed-upon percentage. At the time they provide an MCA offer to a merchant, MCA providers must disclose the terms of the funding.
This law will have an immediate effect on the alternative business lending industry but there are still some things that remain unclear like how strictly everything will be enforced and if the registration system will be completed on time. Most funders doing business in the state have already likely prepared for this but for those who have not, you need to catch up.
Here are 5 things to know about the new Virginia sales-based law:
The law applies to anyone providing this type of sales-based financing to any business located in the state of Virginia, regardless of where your funding company is a registered business.
A disclosure of all other potential fees and charges not included in the finance charge, including late payment fees, draw fees, returned payment fees, and prepayment fees or penalties.
Funders are required to provide the amount of compensation if they are going to pay a broker directly in connection with a given sales-based financing offer.
The law mandates that any legal action relating to a sales-based financing agreement be brought in Virginia.
The new law requires MCA providers (funders and brokers) to register with the Virginia State Corporation Commission by November 1, 2022, and on an annual basis. The initial registration fee of $1,000 and an annual registration fee of $500 by September 15 every year thereafter.
There are other aspects that are in the law that you need to review and enact before funding in Virginia. To ensure you are in full compliance make sure to review your business process and contracts with an attorney.