California MCA Laws:
Effective January 1, 2026
California passed new law that came into effect on January 1, 2026. The new law is contained within SB 362 and has a direct impact on Merchant Cash Advance providers and brokers. A provider includes both funders and brokers.
What is California S.B. 362?
This is California’s new law that directly impacts how merchant cash advance brokers and funders may communicate with merchants starting on January 1st, 2026.
What does SB 362 do?
The law adds further requirements to California’s Commercial Financing Disclosures Law (“CFDL”) which took effect in 2023 and created a law requiring commercial financing providers and brokers to provide certain disclosures to a merchant PRIOR to funding. This includes sharing the actual cost of the total funding.
What does SB 362 do?
Under S.B. 362, MCA providers are not allowed to use the term “rate” in any form or fashion, where it is likely to deceive a recipient. Recipient here means any person who receives an offer of commercial financing, including a revenue purchase agreement or a merchant cash advance.
Does SB 362 Apply to All MCA Deals?
No. SB 362 only applies to MCA deals of $500,000.00 or less.
What Are Examples of Deceiving a Merchant?
The opening remarks to the new law, give the following example of what California means by likely to deceive:
1. Describing the cost of credit as “A% factor rate” or “B% fee rate,” most notably when the “rates” are materially different from the APR.
2. By definition, a “factor rate” will always be significantly less than an APR. Therefore, California has in effect banned the use of the term “factor rate” when communicating with merchants for sales-based financing including a merchant cash advance.
Annual Simple Interest Rate
Additionally, S.B. 362 bans commercial financing providers from using the term “interest” in any manner that is likely to deceive a recipient / merchant.
The following are examples of what California means by likely to deceive:
1. Describing the cost of credit as “simple interest” when referring to a nonannual rate versus a non-compounding annual rate that a reasonable person would understand “simple interest” to mean; and 2. Describing the cost of credit as an “interest rate” when describing a daily, weekly, or monthly rate and not an annual rate.
Remind Recipients of the “APR” or “Estimated APR”
S.B. 362 requires re-disclosure of the APR or estimated APR calculation already required by the Commercial Financial Disclosures Law.
SB 362 adds a new APR disclosure to the CFDL as follows:
• After extending an offer to a recipient, whenever a provider states a charge, pricing metric, or financing amount to the potential recipient for that specific offer during an application process for commercial financing, the provider shall also state the annual percentage rate of that commercial financing offer by using the term “annual percentage rate” or the acronym “APR.”
The APR reminder requirement applies “during an application process.” The term “application process” is not defined, however the APR disclosure requirement is required from application until the recipient receives funding.
Therefore, during the “application process,” anytime a provider or broker communicates with the recipient and states a charge, pricing metric, or financing amount, the provider must remind the merchant of the APR or Estimated APR for that offer. Communication includes text.
