According to California Financial Code Section 22009, a “finance lender” is defined as “any person who is engaged in the business of making consumer loans or making commercial loans.” A lender must be appropriately licensed, unless exempt.
The section also details what constitutes the business of making consumer and commercial loans: “The business of making consumer loans or commercial loans may include lending money and taking, in the name of the lender, or in any other name, in whole or in part, as security for a loan, any contract or obligation involving the forfeiture of rights in or to personal property, the use and possession of which property is retained by other than the mortgagee or lender, or any lien on, assignment of, or power of attorney relative to wages, salary, earnings, income, or commission.”
For cash-strapped entities that own commercial property, sales-leaseback agreements are an effective way of freeing up cash from illiquid properties for business operations. In a typical sales-leaseback transaction, a building owner-occupant will sell a property to an investor in exchange for a commitment to continue leasing the building.
There are seven factors that determine whether a sale-leaseback transaction may be regarded as a commercial loan. If any one or more of these apply, the transaction will likely be regarded as a loan and subject to regulation under the California Finance Lenders Law:
- If the borrower seeks money and not the use of goods or property.
- If the borrower receives money, followed by a “sale” of the borrower’s property to the lender, with a provision for repayment in the form of rent or payments to the lender.
- If the borrower is in possession of the goods or property before obtaining money from the lender.
- If the borrower gives up title to goods or property as security in exchange for receiving money.
- If there is no risk to the lender of losing capital, other than the insolvency of the borrower.
- If the lender has the power to accelerate the principal payment of the “loan” upon default.
- If the transaction includes agreements with provisions of title reversions and “repurchase” within specified periods.
Companies seeking to execute sale-leaseback transactions need the counsel of a qualified California transactional attorney to ensure compliance with California law.
The attorneys at Glass & Goldberg in California provide high quality, cost-effective legal services and advice for clients in all aspects of commercial compliance, business litigation and transactional law. Call us at (818) 888-2220, send an email inquiry to email@example.com or visit us online at glassgoldberg.com to learn more about the firm and to sign up for future newsletters.