California Commercial Financing Disclosure Law Requirements

California’s Commercial Financing Disclosure Law requires non-bank lenders and other alternative finance providers to give a small business borrower a standardized, written cost-and-terms disclosure before closing any commercial financing deal of $500,000 or less. The law was enacted through Senate Bill 1235 in 2018, strengthened by SB 33, and is enforced by the Department of Financial Protection and Innovation (DFPI), whose regulations spell out exactly what the disclosure must say and how it must look.

Who the Law Applies To

The obligation falls on the entity extending a specific offer of commercial financing to a California business, which in practice means non-bank lenders, fintech companies, factors, merchant cash advance providers, and similar alternative funding sources. It also reaches a non-bank partner in a marketplace lending arrangement that facilitates a deal through a financial institution.

“Commercial financing” is defined broadly. It includes commercial loans, accounts receivable purchase transactions (including factoring), asset-based lending, commercial open-end credit plans, and lease financing, as long as the money is intended primarily for business rather than personal use.¹ DFPI regulations add a separate disclosure format for “sales-based financing,” where repayment is calculated as a percentage of the borrower’s future revenue or sales. That category captures most merchant cash advance products.²

Disclosures are only required when the specific financing offer is $500,000 or less.¹ For open-end credit plans, the approved credit limit sets the number. For asset-based lending and factoring, the regulations include measurement rules for whether the expected outstanding balance will exceed the threshold.² Above $500,000, the law does not apply.

Who Is Exempt

Under Financial Code section 22801, several providers and transactions sit outside the law entirely:

Depository institutions: banks, savings associations, credit unions, and similar federally or state-chartered institutions.
Lenders regulated under the federal Farm Credit Act.
Any commercial financing secured by real property.
Financing of $50,000 or more to auto dealers, vehicle rental companies, or their affiliates.
Anyone making one or fewer commercial financing transactions in California in a 12-month period, or five or fewer if the transactions are incidental to their main business.

The depository institution exemption is the reason the law effectively targets non-bank lenders and alternative finance providers rather than mainstream banks.³

What Must Be Disclosed

Every provider subject to the law must deliver a written disclosure when it extends a specific financing offer. Six categories of information are mandatory:

Total funds provided: the dollar amount the borrower actually receives or that is disbursed on the borrower’s behalf.
Total dollar cost: the full cost of the financing over its life, stated as a dollar figure.
Term or estimated term: how long the financing lasts, in days if one year or less and in years and months if longer.
Payment details: method, frequency, and amount of each payment.
Prepayment policies: any charges or restrictions tied to paying off the financing early.
Annualized rate: the total cost of financing expressed as an annualized percentage rate.

The annualized rate item originally carried a sunset date of January 1, 2024. SB 33 removed that expiration, making the annualized rate a permanent part of the disclosure.⁴ It is the single figure that lets a borrower compare offers on the same basis.

Factoring and asset-based lending get a practical accommodation. Where a provider offers a general agreement describing the terms under which future transactions will occur, the disclosure can be drafted around an example transaction rather than actual figures, because the final amounts depend on which receivables or assets are involved.⁵

How the Disclosure Must Look and When It Is Delivered

The DFPI regulations don’t just say what to disclose. They dictate how the document is formatted. Each disclosure begins with a bold “OFFER SUMMARY” header followed by a short product description, and the layout must use a prescribed table structure. Closed-end loans, open-end credit plans, factoring, sales-based financing, lease financing, and asset-based lending each have their own required table format.²

Font rules are specific: Times New Roman, 12- to 14-point for the main columns and 16-point for the header, with columns in a 3:3:7 width ratio. If the amount financed is larger than what the borrower actually receives because fees or other charges were rolled in, the provider must attach a separate itemization showing how the money was allocated. Electronic delivery is allowed, but the format must include a method for electronic signature and an automatic date stamp.

Timing is straightforward. The disclosure has to be delivered at the point a specific offer is extended, and the borrower must sign it before the provider can close the deal.⁶ If the deal never closes, no signature is required. The document must include this statement: “Applicable law requires this information to be provided to you to help you make an informed decision. By signing below, you are confirming that you received this information.”²

Annual Reporting to the DFPI

The point-of-sale disclosure isn’t the only obligation. Providers must also file an annual activity report with the DFPI under the California Consumer Financial Protection Law (CCFPL). In 2023, California became the first state to adopt regulations defining unfair, deceptive, and abusive practices in commercial financing and requiring providers to report activity yearly.⁷

The report is due by March 15 each year for the prior calendar year, with no extensions. Providers must report the total number and dollar volume of transactions across each financing category, along with minimum, maximum, average, and median APR figures for different amount-financed intervals.⁸ Providers with multiple locations must consolidate the data into one report. Missing the March 15 deadline is itself a CCFPL violation.

Enforcement, Penalties, and Borrower Remedies

The DFPI enforces the disclosure requirements through the California Financing Law framework. Licensed providers are subject to examination and enforcement by the DFPI commissioner for any violation of the commercial financing disclosure rules.⁹ Available tools include administrative actions, civil injunctions with ancillary relief, and civil penalties. A willful violation is treated as a crime.⁶

One boundary worth flagging: the statute does not expressly grant borrowers a private right of action. A business that received no disclosure or a defective one can file a complaint with the DFPI, which may investigate and act against the provider, but the law does not on its face give the borrower a direct path to sue for rescission or damages based on the disclosure violation alone. The primary remedy is regulatory, not judicial.

1
California Legislative Information. California Financial Code 22800
2
Department of Financial Protection and Innovation. Commercial Financing Disclosure Regulation Final Text
3
California Legislative Information. California Financial Code 22801
4
California Legislative Information. California Bill Comparison – SB-33 Commercial Financing Disclosures
5
Department of Financial Protection and Innovation. California Financing Law – Commercial Financing Disclosures
6
California Legislative Information. California Bill Text – SB-1235 Commercial Financing Disclosures
7
Department of Financial Protection and Innovation. California Consumer Financial Protection Law – Commercial Financing Annual Report Information
8
Department of Financial Protection and Innovation. CCFPL Commercial Financing Annual Report Form
9
Department of Financial Protection and Innovation. Department of Financial Protection and Innovation – Consumer and Commercial Loans