California SB 1235 — The MCA Loan Disclosure Law You Need to Know

August 25, 2025
Ben Wilson

California SB 1235 was introduced to bring transparency to Merchant Cash Advances (MCAs). These financing tools are popular with small businesses seeking quick capital. But they often come with hidden costs and confusing repayment terms. Many borrowers end up with stacked loans and multiple daily debits that drain cash flow.

To address this, California became the first state to pass a law requiring transparency in commercial financing. It forces MCA providers and lenders to disclose the true cost of financing before business owners sign.

If your business in California has taken—or is considering—an MCA, understanding it is vital. It protects your rights and helps you avoid predatory terms.

What Is California SB 1235?

California SB 1235 is the nation’s first commercial financing disclosure law. It passed in 2018 and took full effect in 2022. The law covers many non-bank lenders, including merchant cash advance providers, factoring companies, and online lenders.

Its goal is simple: make sure borrowers see the true cost of financing. It requires clear, standardized disclosures like those used for credit cards and mortgages.

Who Must Comply With SB 1235?

Covered Providers:

Merchant cash advance companies
Factoring companies
Online and alternative lenders

Exempt Providers:

Banks
Credit unions
Certain commercial lenders making secured loans

What Must Be Disclosed Under SB 1235?

California requires financing providers to give small business borrowers a disclosure form before they sign, which must include:

Total Funding Amount – what the business will actually receive
Total Dollar Cost of Financing – all fees and charges
Term/Estimated Time to Repay
Payment Amount and Frequency (daily, weekly, or monthly)
Prepayment Policies – whether paying early saves money
APR or Estimated Annualized Cost – expressed in a way that allows comparison

Why SB 1235 Matters for MCA Borrowers

If you’re stuck under multiple MCA loans in California, it doesn’t cancel your debt — but it changes how new financing must be presented. This gives you:

Transparency: no more hidden fees buried in fine print
Comparison Power: you can line up multiple offers side by side
Leverage: if your provider didn’t disclose properly, it may strengthen your negotiation or defense

Penalties for Non-Compliance

California’s Department of Financial Protection and Innovation (DFPI) enforces SB 1235. Providers that fail to comply face regulatory penalties and possible legal challenges to contracts.

Debt Consultants Group Insight

At Debt Consultants Group, we track borrower protection laws like California SB 1235 and Texas HB 700 so you don’t have to. If you’re overwhelmed by stacked MCA loans, these laws may provide leverage points to reduce, consolidate, or challenge what you owe.

SB 1235 FAQ

When did SB 1235 go into effect?

It was signed in 2018, but DFPI finalized its regulations in 2022, making compliance mandatory for MCA providers.

Does SB 1235 apply to all business loans?

No. It applies mainly to non-bank lenders, including MCAs, factoring, and online loans — not traditional banks or secured loans.

How does SB 1235 help me if I already have stacked MCA loans?

It won’t erase current debt, but if you’re offered new financing, it forces lenders to disclose costs upfront, which may help you avoid further stacking.

Can I challenge an MCA contract if the lender didn’t comply?

Potentially, yes. Non-compliance could be used as a negotiation point or in disputes, though you should consult professionals before acting.

Do individuals qualify under SB 1235, or only businesses?

It covers financing for commercial purposes — so sole proprietors and small business owners are included.