Merchant Cash Advances in California: The Disclosure Law

California has the broadest commercial financing disclosure law in the country. Under SB 1235, providers of commercial financing (including the sales-based structure a merchant cash advance uses) must give you written disclosures before you sign. The Department of Financial Protection and Innovation (DFPI) enforces the requirement.

If you are comparing an advance against a term loan or a credit-to-cash conversion, the disclosure is the document that makes the comparison honest. Ask for it before you negotiate anything.

What SB 1235 requires providers to show

• Total dollars you must repay. For a factor-rate product, the advance amount multiplied by the factor, stated in dollars.
• The term, in days or months, plus every payment amount and frequency (daily, weekly, or sales-based holdback percentages).
• An estimated APR on a standardized form, alongside the factor rate or fixed fee the provider prefers to quote.
• A statement of prepayment terms, including whether early payoff reduces the total cost.

Disclosures are required for financing at or under $500,000. Banks, licensed lenders acting under their existing regimes, and transactions above that threshold fall outside it. That covers most small-business advance offers you are likely to see.

Why the estimated APR matters

An MCA quote leads with the factor rate because it sounds small. A 1.3 factor on a six-month advance is not “30% interest.” Annualized, the same deal prices at roughly 55-65% APR-equivalent, and our cost comparison prices it that way. The SB 1235 disclosure forces the annualized number onto one page, next to the provider’s own figure. When you see both, the gap between the two quotes is the whole story.

New York runs a parallel regime with its own standardized form; see the New York disclosure law if you operate there.

Read the estimated APR with care. It is an estimate: sales-based products collect varying amounts, so the true rate moves with your revenue. It is still the closest thing to an apples-to-apples number you will get without computing it yourself, and our factor rate to APR calculator reproduces the arithmetic in either direction.

Practical checks before you sign

Request the disclosure in writing and keep it. Compare its estimated APR against the provider’s verbal pitch. Confirm the prepayment language. Some contracts discount early payoff, many do not, and the gap runs to thousands of dollars on a get-out plan. If a provider refuses to give the disclosure, that refusal is your answer about the provider.

Limits of this page

This page summarizes the disclosure regime as of the date published. It is not legal advice. DFPI regulations and thresholds evolve.

For a binding answer on a specific contract, read the disclosure itself. Then consult a California-licensed attorney.