MCA Laws in Colorado: What Business Owners Need to Know
Colorado is one of a growing number of states that have passed commercial financing disclosure laws. The state now requires MCA companies and other commercial financing providers to give small business owners standardized disclosures before a transaction is finalized. This puts Colorado alongside California, New York, Virginia, and Utah as states leading the push for transparency in the MCA industry.
This guide explains Colorado's disclosure requirements and other protections available to business owners dealing with MCAs.
Current MCA Regulations in Colorado
Colorado does not classify MCAs as loans, which means they are not subject to the state's traditional lending statutes or usury limits. However, Colorado has taken a significant step by passing commercial financing disclosure legislation that applies to MCA transactions.
Colorado's Commercial Financing Disclosure Law
Colorado's disclosure law requires commercial financing providers, including MCA companies, to provide small business borrowers with clear and standardized disclosures before the transaction closes. The required disclosures include:
- Total amount of funds provided. The exact dollar amount the business will receive after any fees are deducted.
- Total cost of financing. The total dollar amount the business will pay over the life of the advance, including all fees and charges.
- Annual percentage rate (APR). An estimated APR that allows business owners to compare the cost of an MCA to traditional loans and other financing products.
- Payment amounts and frequency. How much will be debited and how often (daily, weekly, monthly).
- Prepayment terms. Whether you can pay off the advance early and whether early payment reduces the total cost.
This is a major win for Colorado business owners. Before this law, MCA companies could use factor rates and confusing fee structures that made it nearly impossible to understand the true cost of financing. With mandated APR disclosure, you can now compare an MCA directly to an SBA loan, business line of credit, or other options.
The Colorado Attorney General's office and the Colorado Division of Banking have oversight responsibilities related to the enforcement of these requirements.
Confession of Judgment Rules
Colorado law restricts confessions of judgment. Under Colorado Revised Statutes, confessions of judgment are subject to procedural requirements, and Colorado courts are generally protective of defendants' rights to due process.
If an MCA company obtains a COJ judgment against your business in another state, enforcing that judgment in Colorado requires domestication through Colorado courts. Colorado follows the Uniform Enforcement of Foreign Judgments Act, which gives you the right to be notified of the filing and to challenge the judgment before it is enforced.
Colorado business owners should still avoid signing MCA contracts that contain COJ clauses. Even with procedural protections, fighting a COJ judgment costs time and money. If an MCA company refuses to remove the COJ clause, consider it a red flag.
UCC Filing Rules
MCA companies file UCC-1 financing statements with the Colorado Secretary of State. These filings create a public record of the MCA company's claim on your business receivables.
What you need to know about UCC filings in Colorado:
- You can search for UCC filings against your business through the Colorado Secretary of State business filings portal
- UCC filings in Colorado are effective for five years from the date of filing
- When you pay off an MCA, the funder must file a UCC-3 termination statement within 20 days of receiving a written demand from you
- If the funder fails to terminate the filing, you may have a claim for damages under Colorado's adoption of UCC Article 9
Multiple UCC filings from different MCA companies can severely limit your financing options. Check your filings regularly and demand termination as soon as you pay off an advance.
Consumer Protection Laws That Apply
Colorado has a robust consumer protection framework. The Colorado Consumer Protection Act (CRS 6-1-101 et seq.) prohibits deceptive trade practices and applies to business transactions in many circumstances.
Colorado Consumer Protection Act
The CCPA prohibits a wide range of deceptive and unfair practices, including misrepresenting the terms of a financial product, concealing material information, and engaging in misleading advertising. If an MCA company has misrepresented the cost of financing, hidden fees, or made false promises about reconciliation, you may have a claim under the CCPA.
The Colorado Attorney General's office enforces the CCPA and investigates complaints. Filing a complaint is free and can lead to enforcement action against the MCA company.
Uniform Consumer Credit Code
Colorado adopted the Uniform Consumer Credit Code (UCCC), which provides additional protections for certain credit transactions. While the UCCC primarily applies to consumer transactions, its provisions regarding unconscionability and disclosure may be relevant if an MCA is recharacterized as a loan.
Recent Legislation and Court Cases
Colorado's commercial financing disclosure law represents the most significant recent development for MCA regulation in the state. Key points:
- Disclosure enforcement. The law is backed by enforcement mechanisms, meaning MCA companies that fail to provide required disclosures can face penalties and regulatory action.
- Alignment with other states. Colorado's law is modeled on similar legislation in California (SB 1235) and New York, creating a growing standard for MCA transparency across the country.
- Ongoing rulemaking. State regulators are continuing to develop rules and guidance on how the disclosure requirements should be implemented, including calculation methodologies for APR on MCA products.
- No MCA licensing yet. Colorado does not yet require MCA companies to obtain a specific license, but the disclosure law creates a regulatory framework that could expand in the future.
What Colorado Business Owners Should Do
If you are considering an MCA in Colorado or already have one, take these steps:
- Demand your disclosures. Colorado law requires MCA companies to provide standardized disclosures including an APR estimate. If a company refuses or cannot provide these, that is a violation of state law and a major red flag.
- Compare the APR to alternatives. Use the disclosed APR to compare the MCA to SBA loans, business lines of credit, or invoice factoring. The MCA's APR will almost always be significantly higher.
- Check your UCC filings. Search the Colorado Secretary of State website for any existing liens on your business. Multiple filings from stacked MCAs can block you from getting traditional financing.
- Know your COJ protections. Colorado restricts confessions of judgment and provides due process protections. If an MCA company threatens a COJ, consult a Colorado attorney.
- File complaints when warranted. If an MCA company fails to provide required disclosures or engages in deceptive practices, file a complaint with the Colorado Attorney General.
Helpful Resources
- Colorado Division of Banking for financial regulation and complaints
- Colorado Attorney General for consumer protection and deceptive trade practices
- SBA Colorado District Office for alternative financing resources
- Colorado Small Business Development Center for free business counseling
Frequently Asked Questions
Does Colorado require MCA companies to disclose APR?
Can an MCA company enforce a confession of judgment in Colorado?
Where do I file a complaint against an MCA company in Colorado?
Is there an interest rate cap on MCAs in Colorado?
Sources
- Colorado Division of Banking. Financial regulation and oversight in Colorado.
- Colorado Attorney General. Consumer protection and enforcement resources.
- SBA Colorado District Office. Federal small business resources for Colorado businesses.
- Colorado Small Business Development Center. Free counseling and resources for Colorado small businesses.