Vermont Passes Commercial Financing Licensing Bill

Vermont Governor Phil Scott recently approved House Bill 648 (“HB 648”), which imposes licensing and disclosure requirements and account-debiting restrictions for providers of commercial sales-based financing and accounts receivable factoring. These requirements will become effective July 1, 2027.

Once HB 648 takes effect, a “provider” of “commercial financing” will be required to obtain a license prior to engaging in business in Vermont.

“Commercial financing” is defined by HB 648 to include a sales-based financing or factoring transaction. “Sales-based financing” is defined as a transaction that is repaid by the recipient to the provider, over time, as a percentage of sales or revenue, in which the payment amount may increase or decrease according to the volume of sales made or revenue received by the recipient. Sales-based financing also includes (i) a true-up mechanism where the financing is repaid as a fixed payment but provides for a reconciliation process that adjusts the payment to an amount that is a percentage of sales or revenue, and (ii) transactions structured as a sale or assignment of future accounts receivable, future revenue, or future sales. “Factoring transaction” is defined an accounts receivable purchase transaction that includes an agreement to purchase, transfer, assign, or sell a legally enforceable claim for payment held by a recipient for goods the recipient has supplied or services the recipient has rendered that have been ordered, but for which payment has not yet been made. However, a purchase of accounts receivable in connection with the purchase and sale of substantially all of the assets of a business or line of business is not a factoring transaction subject to HB 648. HB 648 does not expressly apply to leases, nor to closed-end or open-end commercial loans. Instead, certain commercial loans will remain subject to licensing and regulation under Vermont’s Licensed Lenders Law.

HB 648 defines a “provider” as a person who provides or will provide commercial financing to a recipient or who extends a specific offer of commercial financing to a person or to the person’s authorized representative. A provider also includes a person who solicits prospective recipients of commercial financing or who presents specific offers of commercial financing on behalf of a third party.

In addition, a provider will be required to hold a loan solicitation license prior to soliciting prospective recipients of commercial financing on behalf of a third-party provider or presenting or extending specific offers of commercial financing on behalf of a third-party provider, and that a third-party provider must be licensed as a lender (or exempt from licensing) under Vermont’s Licensed Lenders Law. “Solicit prospective recipients of commercial financing” is broadly defined by HB 648. The term means, for compensation or gain (or with the expectation of compensation or gain), to:

• Solicit prospective recipients for commercial financing.
• Offer, broker, directly or indirectly arrange, place, or find commercial financing for a prospective recipient.
• Obtain commercial financing for a prospective recipient or offer to obtain commercial sales-based financing for a recipient from a provider.
• Initiate prospective recipients’ interest or inquiry in commercial financing by online marketing, direct response advertising, telemarketing, or other similar contact.
• Engage in the business of selling information identifying a prospective recipient of commercial financing.
• Generate or augment information identifying a prospective recipient of commercial financing for other persons.
• Refer prospective Vermont recipients to other persons for commercial financing.

HB 648 exempts a number of entities from its licensing requirements, including depository institutions, financial institutions, and sellers of goods or services that finance the sale of such goods or services to a recipient. Notably, HB 648’s requirements and restrictions will not apply to commercial financing transactions of $1,000,000 or more that are not primarily for personal, family, or household use, consistent with the existing exemption from licensing and regulation under the Vermont Licensed Lenders Law that applies to commercial loans of $1,000,000 or more.

In addition to the licensing requirement, HB 648 imposes disclosure requirements on providers, including requirements to disclose an effective annual percentage rate (and prescribes permissible APR calculation methods), amounts financed, and fees, and imposes restrictions on providers’ use of arbitration provisions. Further, providers will be prohibited from automatically debiting a recipient’s deposit account unless the provider holds a validly perfected first-priority security interest in the recipient’s account. HB 648 also prohibits commercial financing contracts from containing a confession of judgment. These restrictions are similar to the prohibitions on establishing a mechanism to automatically debit the deposit account of a recipient of “sales-based financing” (unless the provider holds a perfected first-priority security interest in the account) and confessions of judgment that Texas enacted as part of its commercial financing disclosure and registration provisions that took effect on September 1, 2025. (We previously addressed these recent Texas restrictions in our Legal Update.)

Commercial financing providers should consider evaluating their Vermont operations to determine whether they will be subject to the requirements of HB 648.