California APR Disclosure Requirements for Commercial Financing in 2026

California requires APR disclosures for commercial financing extended to small businesses, aiming to bring greater transparency to transactions up to $500,000. Senate Bill 362, effective January 1, 2026, expands on Senate Bill 1235 from 2018. Both laws mandate that lenders and brokers share APR details during the sales process, enabling recipients to compare costs and curbing unfair practices.

SB 362 applies to brokers and lenders, treating violations as Unfair, Deceptive, or Abusive Acts or Practices (UDAP). SB 1235 introduced the state's first disclosure rules for small business financing, tackling deceptive marketing. Small business owners gain clearer cost information, while brokers and lenders need to build disclosures into their processes for compliance. Non-disclosure carries UDAP violation risks.

California's SB 362: New APR Rules Effective January 1, 2026

Senate Bill 362 establishes APR disclosure requirements for commercial financing, effective January 1, 2026. The law covers providers offering financing to recipients--businesses seeking $500,000 or less. It prioritizes pricing transparency in the sales process, so recipients get cost details before finalizing deals.

Brokers and lenders must provide these disclosures to aid informed choices. The rules apply without banning merchant cash advances or fixed-fee financing. As Cloudsquare's analysis explains, SB 362 centers on presenting APR to recipients below the $500,000 threshold. Lenders and brokers must supply these details for qualifying transactions to sidestep UDAP violations.

Background on California's Commercial Financing Disclosure Law (SB 1235)

California's SB 1235, passed in 2018, created the foundation for commercial financing disclosures by requiring APR as the annual cost of financing. This initial state measure targeted small business transactions of $500,000 or less, countering deceptive marketing that hid true costs through mandated disclosures.

Originating in 2018, SB 1235 paved the way for updates like SB 362. Most state small business disclosure statutes use the $500,000 threshold, though California's approach to commercial financing stands apart. Sources such as MonitorDaily and Ballard Spahr's 2026 mortgage banking update note how SB 1235 uses APR to facilitate cost comparisons. The law zeroes in on smaller commercial financings with this threshold.

Federal Preemption and TILA's Limited Role in Commercial APR Disclosures

Federal law leaves California's commercial financing disclosure requirements intact. The Truth in Lending Act (TILA) and Regulation Z apply to consumer loans, mandating disclosures like APR, finance charge, total amount financed, and payment schedule. Commercial loans remain outside their reach.

In 2022, the CFPB issued preliminary determinations that TILA does not preempt California's commercial financing disclosure laws, including those for APR and finance charges. Issued on the CFPB's own initiative, these findings uphold state authority. As Consumer Finance Monitor observes, this position backs California's model without federal override. TILA's consumer emphasis sets it apart from California's commercial APR rules in SB 362 and SB 1235.

Who Must Comply: Lenders, Brokers, and the $500,000 Threshold

Lenders and brokers must comply when extending commercial financing to recipients--businesses seeking $500,000 or less. Both SB 362 and SB 1235 use this $500,000 threshold to determine applicability.

Recipients are the businesses receiving the financing. Lenders and brokers can gauge compliance by reviewing the financing amount and recipient status. Multiple sources affirm this consistent threshold. Compliance means delivering transaction-specific APR details. Under SB 362, for instance, brokers and lenders furnish disclosures to recipients below the $500,000 threshold during sales.

State Variations and Choosing the Right Disclosure Approach

California's commercial financing disclosure laws hinge on the $500,000 threshold, unlike states such as New York with its $2.5 million limit. State commercial finance disclosure laws (CFDLs) demand APR and other details, but specifics like wording differ by jurisdiction.

Lenders and brokers in multiple states should tailor disclosures accordingly. California deals require adherence to SB 362 and SB 1235. Centrex Software's state-by-state overview highlights the rise of these CFDLs, emphasizing customized compliance. The key is matching the financing amount to each state's threshold--California's at $500,000--and applying the right jurisdiction-specific APR wording.

FAQ

What is the $500,000 threshold in California APR disclosure laws?

The $500,000 threshold applies to commercial financing provided to recipients--businesses seeking that amount or less--under SB 362 and SB 1235. It sets the limit for mandatory APR disclosures.

Does SB 362 ban merchant cash advances or fixed-fee financing?

No, SB 362 does not ban merchant cash advances or fixed-fee financing. It requires APR disclosures to promote transparency without restricting these products.

How does California's SB 1235 require APR disclosure?

SB 1235 mandates APR disclosure as the annual cost of financing in small business transactions of $500,000 or less, addressing deceptive marketing through disclosure requirements.

Are California commercial APR laws preempted by federal TILA?

No, the CFPB's 2022 preliminary determinations indicate TILA and Regulation Z do not preempt California's commercial financing disclosure laws, as TILA targets consumer loans.

Who counts as a "recipient" under SB 362?

A recipient under SB 362 is a business seeking $500,000 or less in commercial financing, to whom lenders and brokers must provide APR disclosures.

What happens for violations of these APR disclosure requirements?

Violations of these requirements, including under SB 362, are classified as Unfair, Deceptive, or Abusive Acts or Practices (UDAP).

To stay compliant, review your financing transactions against the $500,000 threshold and integrate APR disclosures into sales processes. Consult state-specific resources for the latest wording requirements.