New Jersey MCA & Business Loan Disclosure Bill Update (S2262)

Bill S2262 in the New Jersey State Senate mandating disclosures on MCA and business loan contracts, was amended last week. In its current form, the bill, if it became law, would require MCA providers to disclose:

• the total dollar costs to be charged to a small business concern, assuming the small business concern delivers all purchased receivables to providers at the time they are generated or at a mutually agreed upon time, and all required fees and charges that are paid by the small business concern and that cannot be avoided by the small business concern;
• the amount financed, which shall mean the advance amount less any prepaid finance charges; and
• for a cash advance that calculates repayment costs dependent on the small business concern’s future receivables, the estimated annual percentage rate, provided as a range, with at least three different repayment times provided and a narrative explanation of how each rate was derived. Any estimated annual percentage rate is to be calculated using a projected sales volume that is based on the small business concern’s average historical sales or the sales projections relied on by the provider in underwriting the cash advance; or
• for a cash advance that calculates repayment costs as a fixed payment, the annual percentage rate, expressed as a nominal yearly rate, inclusive of any fees and finance charges.

Brokers would also be required to provide uniform fee disclosures to both the small business owner and lender or MCA funding provider in a document separate from the funding contract before a small business consummates a loan or MCA transaction.

Previously, the bill defined merchant cash advances as loans. The latest draft updated the definition to mean a financing option that allows a small business concern to sell all or a portion of its future sales collections or other future revenues in exchange for an immediate payment. It refers to this as an asset-based transaction.

You can follow the bill’s updates and read the latest drafts here.

S2262 was originally introduced 11 months ago in March 2018.