California business financing rules: what brokers must show you

California gives business owners more pricing protection than any other state. Since December 2022, providers have had to show an APR on business financing of $500,000 or less. Since January 1, 2026, SB 362 has limited how anyone can use the words "rate" and "interest". And from 2028, AB 2116 requires commercial financing brokers to hold a state licence and post their average and maximum APR on their websites.

Here is what each layer means when a broker brings you an offer.

Layer one: SB 1235 disclosures

California's Commercial Financing Disclosures Law, created by SB 1235, applies to offers of commercial financing of $500,000 or less. It covers term loans, lines of credit, factoring, merchant cash advances and lease financing, with exemptions for banks and credit unions and for deals secured by real estate.

When you receive a specific offer, the provider must give you a disclosure showing:

• The amount financed and what you actually receive
• The total cost of the financing in dollars
• The annual percentage rate, or an estimated APR for products like merchant cash advances where the term depends on your sales
• Payment amounts and frequency
• The term, or estimated term
• The prepayment policy

Hudson Cook's analysis on deBanked explains that the law uses the word "provider" for both funders and brokers. A broker who solicits and presents a specific offer on behalf of a funder can be the one responsible for getting this disclosure to you. Venable notes that providers also file an annual report with the state by March 15.

Layer two: SB 362 since January 1, 2026

SB 362 amended the disclosure law with two rules that change how offers are presented.

No misleading rate or interest language. A provider may not use "rate" in a way likely to deceive, such as quoting a "factor rate" or "fee rate" that differs sharply from the APR. It also may not call a non-annual rate "simple interest" or describe a daily, weekly or monthly figure as an "interest rate". Hudson Cook reads this as effectively ending factor rate quotes to California applicants.

The APR follows every price. After a specific offer is extended, every time the provider states a charge, a pricing metric or the financing amount during the application process, it must also state the APR or estimated APR, using the words "annual percentage rate" or "APR". According to Hudson Cook, that applies on online portals, on phone calls, in texts and on the funding call before money moves.

For you, the effect is simple. Any time a California broker talks numbers on a specific offer of $500,000 or less, you should hear the APR in the same breath. If a broker quotes "1.35" and stops there, ask for the APR.

Layer three: AB 2116 and the broker licence

AB 2116 was signed on September 30, 2026. It moves commercial financing of $500,000 or less for small businesses into the California Financing Law, the licensing law the Department of Financial Protection and Innovation already uses for finance lenders and brokers.

Who it covers. Morrison Foerster reports the law applies to small businesses with annual gross receipts of no more than $16 million, adjusted over time. Holland and Knight lists the covered products as commercial loans, open-end credit, receivables purchases including factoring, merchant cash advances and lease financing.

Who counts as a broker. The definition is broad. Holland and Knight describes it as anyone who, for compensation, transmits or uses your sensitive data for referrals, negotiates, advises on the deal, helps prepare documents or charges an application fee. Ballard Spahr notes sensitive data includes bank account numbers, bank statements and credit scores. Ballard Spahr also flags that the definition appears to reach brokers of conventional loans from banks, not only alternative funders.

When. Most of the law is operative January 1, 2028. The licence requirement itself starts July 1, 2028, and a broker that files a complete application by that date may keep working while the DFPI reviews it, per Morrison Foerster. Out of state brokers serving California businesses should assume they are covered, because physical presence in California is not required.

What licensees must do. Holland and Knight reports that applicants apply through NMLS, submit fingerprints and key individual information, and maintain a surety bond. Morrison Foerster gives the minimums as $25,000 in net worth and a $25,000 bond. Licensees keep records for at least three years, file annual reports and are subject to DFPI examinations.

The APR on the website. This is the rule business owners will notice first. A licensed commercial financing broker must clearly and conspicuously post on its website the average and maximum APR for the financing it facilitated in the most recent calendar year. Before you ever call a broker, you will be able to see the price range of what it actually placed last year.

New protections. AB 2116 bans confessions of judgment and powers of attorney taken before a default, prohibits unfair, deceptive or abusive practices, treats unconscionable agreements as violations, and bars contract terms that stop you from sharing the terms of your financing. Ballard Spahr notes an agreement with an unlicensed provider made on or after January 1, 2028 is generally unenforceable.

What to do today as a California business owner

You do not need to wait for 2028 to get the benefit of these rules:

1. Ask for the APR on every offer. Under SB 362 your broker must provide it once you have a specific offer. Compare offers on APR and on total dollar cost.
2. Read the disclosure before you sign. Check the amount you actually receive against the headline amount. Fees taken at funding show up here.
3. Ask how the broker is paid. A good broker tells you whether the lender pays a commission, whether you pay a fee, and how much. Our guide to broker fee vs lender-paid commission explains the difference.
4. Ask about the licence plan. A broker active in California small business financing will know about AB 2116 and can tell you when it plans to file.
5. Keep the paperwork. You are allowed to share your terms with advisers and other funders, and AB 2116 makes clauses that stop you from doing so a violation.

California on the register

The register lists business loan brokerages across California, including Los Angeles and San Francisco. Each entry carries a register number, status and last checked date, and verified entries show fees in writing. As California licences appear on NMLS Consumer Access, we link each entry to its public record. You can check a broker's standing at any time.