What Happened?
On June 16, 2026, Vermont enacted HB 648 that imposes licensing, disclosure and certain restrictions on sales-based financing and factoring transactions. The bill incorporates certain notable provisions from Texas HB 700, which was enacted on May 29, 2025, including an ACH debit ban and confession-of-judgment prohibition. The law takes effect on July 1, 2027.
Why Does It Matter?
Notably, the Vermont law applies to both sales‑based financing (e.g., merchant cash advances, revenue‑based financing) as well as factoring / receivables purchase transactions, and covers both providers (funders) and brokers. The law requires providers of sales-based financing and/or factoring to obtain a Vermont Lender license and persons who solicit prospective recipients of sales-based financing and/or factoring to obtain a Vermont loan solicitation license. The Vermont law requires providers to disclose the amount of financing, the APR, the total cost of capital, the repayment terms / method and other material pricing and structural terms. Similar to Texas HB 700, the law prohibits sales-based financing and factoring providers from automatically debiting a recipient’s deposit account unless the provider holds a validly perfected, first-priority security interest in the recipient’s account. The law includes salient restrictive provisions such as prohibitions on confessions of judgment and similar provisions in any factoring or sales-based financing contracts and requires that contracts must be governed exclusively by Vermont law. Further, the law mandates that all disputes be brought in Vermont courts, and that if arbitration is necessary, face-to-face proceedings cannot occur outside Vermont.
The Vermont law does not apply to banks and other depository institutions, sellers of goods or services that finance the sale of goods or services, and transactions of $1,000,000 or more that are not primarily for personal, family, or household use.
What to Do Now
Vermont joins eleven states that require providers of certain types of commercial financing to disclose key terms to small businesses and other covered entities before a transaction is consummated. The new Vermont law is notable because it requires providers and brokers to obtain licenses, not the more ministerial registrations mandated by the state statues adopted in Texas, Utah and Virginia, and it covers both sales-based financing and factoring transactions. The Vermont prohibitions against debiting a recipient’s deposit account and requirement to litigate in Vermont courts are especially burdensome if not impractical. It is a certainty that other states will enact similar types of laws regulating commercial financing arrangements.
