May 22, 2026
In a move that likely will restrict access to capital for Vermont businesses, the Vermont legislature passed a bill targeting both factoring and sales-based financing. Unless vetoed by Governor Phil Scott, House Bill 648 will impose the following requirements on factoring and sales-based financing providers and brokers effective July 1, 2027:
The Vermont bill also copies a controversial section of a recent Texas law, 2025 TX H.B. 700. If enacted, the Vermont bill prohibits a provider of factoring and/or sales-based financing from establishing "a mechanism for automatically debiting a recipient's deposit account" unless the provider holds a validly perfected security interest in the "recipient's account" as defined in Article 9 of the UCC, with a first priority against the claims of all other persons. The Texas law impacts only providers of sales-based financing. It appears that the Vermont legislature used the Texas law as a blueprint to target both factoring and sales-based financing.
The Vermont bill also bans confessions of judgment or any similar provisions in a factoring or sales-based financing contract and requires any contract to be governed exclusively by Vermont law. Finally, the bill requires any dispute to be brought in a Vermont court. If the contract provides for arbitration, face-to-face proceedings cannot be required outside of Vermont.
The bill exempts transactions of $1 million or more, banks and financial institutions, and sellers of goods or services that finance the sale of such goods or services to the recipient.
The language targeting factoring and sales-based financing was added just last week to a larger bill impacting banking, insurance, and securities.