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CALIFORNIA • MCA LAW

California SB 1235

California SB 1235 is the nation’s first commercial financing disclosure law, forcing MCA providers, factoring companies, and online lenders to show the true cost of financing before a small business signs.

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State-specific guidanceDisclosure requirementsActionable review
EFFECTIVE
Signed 2018; DFPI regulations effective December 9, 2022
COVERS
Non-bank providers of commercial financing in California — including merchant cash advance companies, factoring companies, and online and alternative lenders. Banks, credit unions, and certain secured commercial lenders are exempt.
ENFORCED BY
California Department of Financial Protection and Innovation (DFPI).
KEY PROVISIONS

What SB 1235 requires

Total funding amount

Providers must disclose the exact dollar amount the business will actually receive after any fees or holdbacks.

Total dollar cost of financing

All fees, interest, and charges must be aggregated into a single total-cost number so borrowers can see what they are really paying.

APR-style cost comparison

SB 1235 requires an annualized rate or equivalent cost metric so offers can be compared side by side the way consumers compare credit cards or mortgages.

Payment amount and frequency

Providers must disclose payment size and cadence — daily, weekly, or monthly — as well as the estimated term to full repayment.

Prepayment policy

The disclosure must spell out whether paying early saves money or whether the full repayment amount is still owed.

PENALTIES

What happens if a provider doesn't comply?

Providers that fail to deliver the required disclosures face DFPI regulatory penalties and possible legal challenges to their contracts. Non-compliance can also become leverage for borrowers disputing an MCA.

IF YOU'VE BEEN AFFECTED

What borrowers can do now

  1. Request a copy of the SB 1235 disclosure form you were given before signing — or confirm you never received one.
  2. Compare your funded amount against the total scheduled repayment to estimate your true effective APR.
  3. Document any missing fees, unclear prepayment language, or daily-debit terms that were not disclosed upfront.
  4. Contact Debt Consultants Group for a complimentary contract review before taking on new MCA financing.

Citations & sources

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