CFGMS Admin October 31, 2023 Categories: Compliance Regulation, Merchant Cash Advance

Connecticut has officially joined the growing group of states committed to promoting transparency and accountability in commercial financing. On June 28, 2023, Governor Ned Lamont signed Senate Bill 1032, titled “An Act Requiring Certain Financing Disclosures.” The law mandates that providers of sales-based commercial financing must deliver specific disclosures to recipients prior to funding.

With this move, Connecticut becomes the seventh state—alongside California, New York, Georgia, Utah, Florida, and Virginia—to enforce a commercial financing disclosure framework.

Key Definition: Sales-Based Financing Under SB 1032

The Connecticut law applies specifically to sales-based financing transactions of $250,000 or less, intended for business purposes only.

Sales-based financing is defined as a transaction where repayment is:

– Based on a percentage of sales or revenue, or
– Structured as fixed payments that adjust according to sales or revenue fluctuations

This ensures flexibility in repayment, typically used by small and medium-sized businesses.

Disclosure Requirements for Sales-Based Financing

Beginning July 1, 2024, providers must disclose a detailed set of information before a financing transaction is finalized, including:

1. Total financing amount

2. Amount disbursed to the recipient (net of finance charges)

3. Finance charge

4. Total repayment amount (disbursement + finance charge)

5. Estimated repayment period

6. Payment frequency, method, and amount

For variable payments, a clear schedule and methodology for calculating those payments must be provided.

Additional disclosure obligations include:

1. All applicable fees (e.g., draw fees, late fees, returned payment fees)

2. Prepayment terms, including any associated fees

3. Collateral or security interest requirements

4. Broker compensation—any amount the provider pays to a broker on the recipient’s behalf

For renewal transactions, disclosure of any unpaid finance charges included in the new total (commonly referred to as “double dipping” in other states)

📌 Note: Early drafts of the bill included an APR disclosure requirement (as required in California and New York), but this was removed in the final version of the legislation.

Registration and Exemptions

Connecticut’s law also requires annual registration with the Department of Banking for:

*Providers

*Brokers

*Entities must pay a fee to register unless exempt. Exemptions include:

*Federally regulated banks and credit unions

*Certain technology service providers

*Entities completing five or fewer transactions within a 12-month period in Connecticut

Compliance Timeline and Implications

The law goes into effect on July 1, 2024, allowing time for providers and brokers to update systems, contracts, and internal processes.

Providers must act now to:

✅ Familiarize themselves with the law
✅ Train staff on disclosure obligations
✅ Implement compliance procedures to avoid enforcement penalties

As more states adopt similar legislation, the national trend toward greater transparency in small business finance continues to grow. Connecticut’s action further signals that disclosure laws are quickly becoming a standard expectation across the industry.

CFGMS™ ISO Partners Get Direct Access to Compliance Guidance

At CFG Merchant Solutions (CFGMS™), we’re committed to helping our ISO partners stay ahead of evolving regulations. For questions on Connecticut SB 1032—or laws in New York, California, Georgia, Utah, Virginia, Florida, or others—please reach out directly:

📧 compliance@cfgms.com
Dan Taylor, Vice President of Compliance & Data Assurance, is available to provide clarity and support for all your state disclosure questions.