California Lender Licensing Act Exemption for One-Time Loan About to Expire | Manatt, Phelps & Phillips, LLP


A California lender licensing exemption for one person making a single business loan over a rolling 12-month period is set to disappear in California, affecting those who relied on the exemption, including when structuring transactions through special transactions. company vehicles (SPV).

What happened

As lenders are likely aware, California has a lender licensing law called the California Financing Law (CFL) which requires anyone engaged in California in the consumer or business lending industry to obtain a license as a “financial lender” from California. Department of Financial Protection and Innovation, unless a license exemption applies.

The CFL includes several licensing exemptions, primarily for people licensed under other laws, such as banks. However, an exemption that does not require other licenses that have been important for certain transactions, including commercial real estate projects and other specialized financing transactions, such as transactions using the federal new tax credit program. markets, is the exemption provided for in section 22050.5 of the CFL. , which provides that the CFL “does not apply to anyone who does not make more than one loan in a twelve month period if that loan is a business loan within the meaning” of the CFL. This exemption has been helpful to many lenders, including, for example, those who have set up an SPV involving a particular California-related project, and who then make a single loan for business purposes.

CFL Section 22050 (e) sets out a separate exemption for a person making five or fewer business loans in a rolling 12-month period, provided the loans are “incidental to the activities of the person availing themselves of the loan. ‘exemption’. While the larger number has been useful to some people, including venture capital firms and others who primarily do capital investments, this exemption is not available for SPVs created to make a single loan, because the only activity of such an SPV is the loan.

The “five or less” exemption was created by modifying an existing exemption that applied to a single loan and did not have an ancillary qualifier. Section 22050.5 was added to the CFL in 2017 to address what was likely the unintentional elimination of the SPV exemption by these changes. Unfortunately, section 22050.5 provides that the exemption for a person making a single business loan over a 12-month period “will only remain in effect until January 1, 2022 and from that date is repealed”. To date, Section 22050.5 has not been extended.

Why is this important

As a result of this “sunset” provision, starting in 2022, lenders who previously relied on the exemption to make commercial loans in California, including under SPVs put in place to make a single loan, will need to consider licensing under the CFL, the possible applicability of a limited number of other licensing exemptions, or other structures that resolve the licensing problem.


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