CHAPTER 2.01. Licensing Requirements for Lending

• Jurisdiction: United States

2.01. Licensing Requirements for Lending

Most entities that make loans in Delaware must obtain applicable licenses, including the following:

• Delaware banks and trust companies;¹
• Foreign banks must qualify before conducting a banking business in Delaware;²
• Building and loan associations;³
• Mortgage loan brokers;⁴
• Mortgage loan originators;⁵
• Entities engaged in financing the sale of motor vehicles;⁶ and
• Business and industrial development corporations ("Bidcos") that provide financing assistance to business firms through, for example, straight loans, purchase of debt instruments, straight equity investments, debt with equity features, royalty-based financing, or guarantying of debt or leasing of property.⁷

Entities must acquire a license before transacting the business of lending money in Delaware involving consumer credit transactions.⁸

Although the general rule is that a lender making loans in Delaware must be licensed under the Licensed Lender Act, a lender making not more than 5 loans in any 12-month period is not required to be licensed.⁹ Further, even though a lender is not required to obtain a license under the Licensed Lender Act, the lender may be required to obtain a license to operate as a "finance or small loan agency" ("Loan

Agency License") in Delaware.¹⁰ Delaware law defines "finance or small loan agency" as follows:

[E]very person engaged in the business of lending money, with or without security, to other persons with repayments of the loans to be made by installments or otherwise, but shall not include, either in reference to future or past transactions, banks or trust companies authorized to do business in [Delaware] under Title 5.¹¹

Unfortunately, there is no reported Delaware decision regarding whether mortgage lending secured by real property located in Delaware requires a Loan Agency License. The statute sets forth the penalties for carrying on specific occupations without a license as follows:

If any individual, copartnership, firm or corporation or any association of persons acting as a unit shall engage in, prosecute, follow or carry on any occupation or business for which a license is required by this Part, within the limits of [Delaware], without having first obtained a proper license therefore, he, she or they and the individuals composing such firm or association of persons and each of them and the president and directors of such corporation and each of them, and those persons defined in §282 of Title 11, for

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