State Rep. Jason Doucette, D-Manchester, sits in the House of Representative chamber after HB 1032, An Act Requiring Certain Financing Disclosures, passed Wednesday, June 7. Yehyun Kim / CT Mirror

This story has been updated.

The Connecticut legislature adopted new regulations Wednesday aimed at improving transparency for small businesses that seek financing from certain alternative lenders. 

The bill received broad bipartisan support, with both chambers voting unanimously to pass the measure. 

“The banking committee has looked at this over the course of the last two sessions, and over lengthy discussions with stakeholders, we have arrived at a bill we think is a good bill,” Rep. Jason Doucette, D-Manchester, who co-chairs the legislature’s Banking Committee, told fellow House members before the vote Wednesday.

But national small business advocates expressed frustration with the final version of the bill, which removed key elements they’d pushed for — namely, a requirement that alternative lenders disclose an estimated annual percentage rate (the yearly interest) charged on any financing they offer to small business clients. 

Merchant cash advance companies say an APR calculation could be inaccurate because the products they offer don’t have a set term.

The Banking Committee also narrowed the bill to apply only to what’s known as “sales-based financing” or “merchant cash advances.” Those financers provide funds to small businesses in exchange for a percentage of future sales or revenue, withdrawn directly from a business’ accounts. 

[RELATED: CT considers ‘truth in lending’ rules for some fintech companies]

“The meat of transparent lending has to include APR, and it has to apply to all financing products,” said Awesta Sarkash, policy director with Small Business Majority. 

“The next legislative session, we really want to work with lawmakers to make sure the law goes further and protects Connecticut small business owners,” Sarkash said. “But there was clearly a missed opportunity here.”

A handful of states, including California, New York, Virginia and Utah, have adopted similar regulation. The Virginia and Utah laws don’t call for financers to disclose an estimated APR but do require several other disclosures. Advocates including Sarkash’s group prefer the models adopted by California and New York, which lay out a method to approximate APR on nontraditional financing products.

Sen. Eric Berthel, R-Watertown, professed his support for the legislation during a debate in the senate Tuesday. 

“This essentially brings some common sense price transparency to small business financing,” he said, noting that the disclosures laid out in the bill are similar to those required in consumer lending, such as taking out a car loan, buying a house or financing a new appliance. 

He called it “a good bill for making sure that our small businesses and various consumers of this type of lending product are properly protected.”

Doucette called the legislation “a first step,” indicating that he expects to revisit it during the 2024 legislative session. 

The bill won’t even be in effect by then. The biennial budget, which passed Tuesday, provides funding to hire Banking Department staff next year to enforce the new regulations, which go into effect July 2024.

“We do need to talk to the agency about implementation,” Doucette said. “The agency may even prefer an APR, or they may have other things that they want us to modify once it’s implemented. This is a totally new arena.”


An earlier version of this story misstated Rep. Jason Doucette’s residency. He lives in Manchester.

Erica covers economic development for CT Mirror. Before moving to Connecticut to join the staff she worked in Los Angeles for public radio’s Marketplace and, before that, for the Wall Street Journal's L.A. bureau. She grew up in Minneapolis, MN, graduated from Haverford College and earned a master’s in journalism from the University of Southern California.