Happy New Year!
As of January 1, 2026, California’s SB 362 went into effect — and it is going to shake up the way commercial financing offers are communicated to small business owners in the Golden State. But before you panic or assume it’s going to make the market magically fairer, let’s unpack what the law actually says, who it applies to, and what I think is actually going to happen in the real world.
What SB 362 Is Really Trying to Do
At its core, SB 362 tweaks California’s commercial financing disclosure law to reduce confusion over cost language.
The deBanked article on the subject explains that the law prohibits providers from using terms like “factor rate,” “X% fee,” or any misleading use of “interest” or “rate” without also disclosing the APR — and it applies to offers of commercial financing of $500,000 or less. deBanked
Under the new rules:
- You cannot say “factor rate” to a California merchant as part of the pitch because factor rates almost always diverge materially from APR. deBanked
- You cannot use “interest rate” to describe a daily, weekly, or monthly rate and mean something other than an annual rate. deBanked
- After extending a specific offer, anytime you state a pricing metric or financing amount, you must also state the APR or Estimated APR. deBanked
That’s it in plain English:
If you are telling a business in California how much a deal “costs” in specific dollars or percentages, you now have to state the APR alongside it.
(And yes — APR for most MCA and revenue-based products almost always looks worse than the factor rate that people are used to seeing.)
Does This Apply to Brokers?
Yes — and this is an important piece that many people miss:
Under California’s commercial financing disclosure law, a “provider” is not limited to lenders.
If you extend a specific offer of commercial financing to a California business — regardless of whether you are the one putting up the money — you’re a provider for disclosure purposes.
That means:
- Brokers who send offers or term sheets to merchants must comply.
- It doesn’t matter where the broker is located — what matters is where the recipient of the offer is.
- So if the broker sends a merchant an offer that includes pricing, it triggers the APR disclosure rule.
We have been talking about how opaque and murky broker pricing has been for years. This is finally a rule that forces some level of transparency — at least in word.
Okay — But What Does This Look Like in Practice?
Here’s where things get interesting.
In theory, SB 362 pushes the industry toward clearer pricing by requiring APR and discouraging “factor rate” language that looks lower but hides actual cost. But the law does not require brokers to:
- explain APR in a way a merchant can understand,
- compare alternatives with APR context, or
- advise the merchant what makes sense for their business.
All it requires is:
Whenever a specific pricing metric or dollar amount is communicated after an offer is made, the provider must also state the APR. deBanked
That might sound strict, but it doesn’t change the economics of the deals — it just changes the words used to describe them.
So what will brokers actually do?
Here’s my read:
1) They will hate talking APR up front.
APR tends to look much higher than a factor rate. Even though the underlying economics haven’t changed, APR feels worse to merchants. No broker alive wants to lead with something that looks worse than the factor rate.
2) They will push APR into fine print and contract language.
“Compliant” offers will probably look like:
- “APR is X%” somewhere buried in the disclosure,
- followed by “You receive $100,000 and repay $125,000 over Y months.”
As long as the APR appears in the communication, technically the law is satisfied.
3) There will be a long period of hybrid compliance.
I honestly don’t know how this will be enforced. Will DFPI audit every broker? Will merchants start reporting non-compliance? Your guess is as good as mine. My suspicion is that 2026 will feel like a mishmash of half-compliance, selective compliance, and outright non-compliance.
4) Brokers will fight this quietly.
Because APR feels worse than a factor rate — even though it isn’t — the instinct will be to bury it, refer to it only when asked directly, or hope you never notice.
This law does not make brokers stop selling bad deals.
It just makes them talk differently about those deals.
Why This Will Be a Merchant Screening Tool
Here’s the piece I want every small business owner to take away:
How a broker responds to an APR question in 2026 is a trust test.
If a broker:
- dodges the APR question,
- argues about semantics,
- insists “APR doesn’t matter,”
then what you are seeing is not compliance confusion — it’s avoidance.
A broker who can’t even say “This is the APR under California law” in a straightforward way is not a broker you should trust with your business.
Use SB 362 as leverage, not as a shield.
Will This Actually Change Deals? Maybe Over Time
Right now you can frame a deal like:
- “Factor rate of 1.25 over 12 months,”
and leave a merchant confused about what that really means.
Starting 2026 in California, you can’t talk that way without ALSO stating APR.
But here’s the kicker:
Merchants will still anchor on total repayment and cash flow impact — not APR.
APR is notoriously confusing for short-duration, frequent-remittance products. Most business owners will still think in terms of “How much am I paying back? How fast? How much is coming out of my account each week?” — not spreadsheets full of TILA/APR math.
So what SB 362 changes is words, not incentives.
What will change eventually is that merchants who actually pay attention to APR disclosures will start asking better questions, and brokers who can’t speak in APR terms will stand out as unprepared.
That is a behavioral shift, not a regulatory one — and it’s the kind of shift that actually matters in the long run.
In Sum
- SB 362 tightens pricing disclosures for commercial financing deals in California.
- It applies to brokers and lenders whenever specific pricing terms are communicated to a California business.
- Brokers will resist talking APR up front because it looks worse than factor rates.
- Compliance will likely be a mixed bag and enforcement soft at first.
- If you’re going to work with a broker in 2026, asking for an APR quote is an instant trust test.
The law is a step toward transparency — but it will be merchants who actually read the disclosures who benefit the most.