Virginia's sales-based financing rules: registration, a prescribed form, and no confessions of judgment

Virginia went further than a disclosure sheet. Its sales-based financing chapter registers the funder and the broker, prescribes the form the numbers arrive on, forces litigation into Virginia courts, and bans confession-of-judgment clauses in these contracts. If you are financing a Virginia business against future revenue, this is the most structurally protective of the state regimes.

What counts as sales-based financing

Chapter 22.1 of Title 6.2 of the Code of Virginia defines sales-based financing as a transaction repaid by the recipient to the provider over time as a percentage of sales or revenue, with payments that move with business volume. It also captures fixed-payment structures that carry a true-up mechanism reconciling payments back to a revenue percentage. That definition is aimed squarely at merchant cash advances and revenue-share products, and the reconciliation clause means a funder cannot escape it by charging a flat daily debit.

Registration of providers and brokers

Providers and brokers both register with the State Corporation Commission. Registration carries an initial fee of $1,000 and a $500 annual renewal due on 15 September; a registration that is not paid for expires. Applicants must disclose judgments, memoranda of understanding, cease-and-desist orders and convictions involving fraud or money laundering affecting the entity or its officers.

Three categories are outside the chapter: financial institutions; a person making five or fewer sales-based financing transactions in a twelve-month period with a recipient; and an individual transaction over $500,000.

Broker registration is the part worth using. If a caller is arranging Virginia sales-based financing for a fee, they are supposed to be registered. Ask, and check.

The disclosure form

The Commission prescribes the form. Under 10VAC5-240 the provider gives you the Sales-Based Financing Disclosure Form at the time it extends a specific offer. The provider may not alter the prescribed format or add information that is not authorised, and the form must arrive as a separate document in a form you can keep. You sign and date it. If the financing is paid off or refinanced early, an updated form has to be produced and signed.

The statutory disclosure list covers the total financing amount and the disbursement amount; the finance charge and total repayment amount; the estimated number of payments based on projected sales; the payment schedule or the method of calculating it; every additional fee, including draw fees, late fees and prepayment charges; any collateral or security interest; and — usefully — the broker's compensation.

The provisions that bite hardest

Three clauses in the chapter do more for a borrower than any disclosure line.

Provisions that do not comply are unenforceable against the recipient. Enforcement sits with the Attorney General, who can seek an injunction, damages, other relief including restitution, and reasonable attorney fees.

What to do with all this

1. Ask for the registration number of both the provider and anyone brokering the deal, then verify with the State Corporation Commission rather than taking the number on trust.
2. Look at the broker compensation line. Virginia is one of the few states that makes you told this on the form.
3. Read the estimated number of payments against your own deposit history, not against the funder's projection.
4. Search the contract for the words "confess", "judgment by confession" and "cognovit". Finding one in a Virginia sales-based financing agreement is a serious signal about the counterparty.
5. Check where the contract says disputes go.

Limits

The chapter covers sales-based financing. A conventional term loan, an equipment lease or a real-estate-secured facility is a different animal and is not covered by this form. Above $500,000 the chapter does not apply at all. And registration is not endorsement — the Commission registers providers, it does not price-check their offers.

Reading the estimated payment count against your own numbers

The form gives an estimated number of payments based on projected sales. That projection is the funder's, and it is the assumption that determines how long the deal actually runs.

Illustrative only — the form shows $81,000 of total repayment as 180 daily payments of $450. Check the $450 against your own deposits. If the specified percentage applied to your real daily receipts produces $370, the deal takes about 219 payments rather than 180. That is 39 extra business days, close to eight working weeks.

The dollars do not change. What changes is how long the obligation sits on the business, and whether the duration you planned around was ever realistic. Do that division before you sign, because it is the one number on the form that is a forecast rather than a term.

If the form is missing, altered, or late

The chapter requires the prescribed form, unaltered, as a separate document, at the time a specific offer is extended. So:

• A disclosure appearing as a schedule inside the agreement is not the prescribed form delivered as required.
• A form carrying added marketing content, or fields the regulation does not authorise, has been altered.
• A form produced at closing rather than at offer has arrived at the wrong point in the process.

Provisions that do not comply are unenforceable against the recipient, and enforcement sits with the Attorney General. That is not a reason to sign and argue later. It is a reason to raise it before signature, in writing, and to keep the reply. A funder that corrects it at once is behaving normally. One that explains why the chapter does not reach it should be asked to put that explanation in writing too.

Verify the current text and fee schedule in the Code of Virginia before relying on any figure here.

This is general information and not legal advice for your situation.