California SB 362: APR Disclosure Rules Now in Effect

Since January 1, 2026, a California business owner shopping for a merchant cash advance, factoring line, or equipment financing is entitled to hear the annual percentage rate every time the funder quotes a number — not once, in a disclosure form, at the moment of signing.

That change comes from Senate Bill 362 (Grayson), signed as Chapter 352 of the Statutes of 2025. SB 362 did not create California’s commercial financing disclosure regime; a 2018 law did that. What SB 362 did was close the gap that regime left open — the stretch of the sales conversation between the initial offer and the signature, where a funder could quote factor rates, daily payment amounts, and “rates” of various kinds without ever restating the APR alongside them.

This page explains what the law now requires, who it covers, how it is enforced, and — just as importantly for a business owner already in default — what it does not do. If you are being sued or collected against, the honest answer about SB 362’s role is more limited than most marketing copy suggests, and that distinction is covered in detail below.

A note on the bill number: there are two California bills numbered SB 362. The 2023 version is the Delete Act, which concerns data brokers and has nothing to do with commercial financing. The law discussed on this page is the 2025–26 session bill by Senator Grayson, Chapter 352, Statutes of 2025, effective January 1, 2026.

Quick reference: what changed on January 1, 2026

Issue	Before SB 362	On and after January 1, 2026
When APR must be stated	Once, in the required disclosure delivered at the time of the specific offer	At the specific offer, and again whenever the provider states a charge, pricing metric, or financing amount during the application process
Use of “interest” and “rate”	No express statutory restriction on how the terms were used in sales communications	A provider may not use “interest” or “rate” in a deceptive way that could reasonably mislead the recipient (Fin. Code § 22806(a))
Safe use of those terms	Not addressed	Permitted where the metric genuinely is an annual interest rate or APR, fixed or floating, expressed as a margin over an index (§ 22806(c))
Enforcement path	Framed around California Financing Law licensees	CFL violation for licensees; a deemed UDAAP violation under the CCFPL for transactions outside the CFL (§ 22807)
Transaction size covered	$500,000 or less	Unchanged — $500,000 or less
Private lawsuit by the business	No express private right of action in Division 9.5	Unchanged — no express private right of action added

Background: the disclosure law SB 362 amended

California was the first state in the country to require commercial financing providers to disclose the annualized cost of a financing offer to small businesses. That came from SB 1235 (Glazer, 2018), codified at Division 9.5 of the Financial Code, sections 22800 and following. Because annualizing the cost of a non-loan product like a receivables purchase involves estimation rather than arithmetic off a stated interest rate, the Legislature delegated the mechanics to the Department of Financial Protection and Innovation. DFPI finalized those regulations in 2022, and the disclosure obligation became operative in December of that year.

The 2018 framework produced a single, standardized, TILA-style disclosure at the moment a specific offer was extended. For a full breakdown of that original law, see our overview of the California MCA disclosure law under SB 1235.

The legislative record behind SB 362 identified a practical problem with one-time disclosure. A small business owner is frequently anchored to a factor rate, a daily or weekly debit amount, or a “simple interest” figure long before the compliant disclosure appears. By the time the APR is delivered in a formal document, the owner has already mentally priced the deal. A disclosure that arrives after the decision has effectively been made does less work than one that travels alongside every number quoted.

What SB 362 actually requires

The APR restatement rule — Financial Code § 22806(b)

This is the operative change. After extending a specific offer, whenever a provider states a charge, a pricing metric, or a financing amount to the potential recipient for that offer during the application process, the provider must also state the annual percentage rate — using the words “annual percentage rate” or the acronym “APR.”

Read carefully, the rule has four moving parts. It is triggered only after a specific offer has been extended, so it does not govern generic advertising. It attaches to three categories of statement, not just rate quotes: a charge, a pricing metric, or a financing amount. It runs through the entire application process, not a single moment. And it specifies the label, which means an APR figure disclosed under some other name does not satisfy it.

In practice that reaches far more than the disclosure form. It reaches emails, text messages, proposal summaries, renewal and “add-on” offers, figures displayed in an online funding portal, and what a salesperson says on the phone.

The deceptive terminology restriction — § 22806(a)

A provider may not use the term “interest” or the term “rate” in a deceptive way that could reasonably result in the recipient being misled. The standard the Legislature discussed in committee was the familiar unfair-competition standard under Business and Professions Code section 17200 and the case law interpreting it, rather than a novel test written from scratch.

The conduct this targets is recognizable to anyone who has shopped for a cash advance: a factor rate of 1.35 described to an owner as “35 percent interest,” or a holdback percentage described simply as “the rate.” Neither is an annualized figure, and both invite a comparison to a bank loan that the numbers do not support. Our explainer on factor rate versus APR walks through why those two numbers diverge so sharply.

The carve-out for genuine annual rates — § 22806(c)

SB 362 is not a ban on the words “interest” and “rate.” Subdivision (c) provides that using them is not deceptive where the metric actually is an annual interest rate or annual percentage rate — fixed or floating for the financing period — and is expressed as a margin over an index rate. A conventional prime-plus-a-margin credit facility can be described in ordinary language. The restriction bites where non-annualized pricing is dressed in annualized vocabulary.

Clarified enforcement — § 22807

Before SB 362, the enforcement provision was framed around providers licensed under the California Financing Law, which left an awkward question about providers operating outside that licensing framework — a description that fits a substantial share of the merchant cash advance industry. Section 22807 resolves it in two subdivisions. A Division 9.5 violation by a CFL licensee is deemed a CFL violation where the transaction is subject to the CFL. Where the transaction is not subject to the CFL, the violation is deemed an unfair, deceptive, or abusive act or practice under the California Consumer Financial Protection Law.

The practical effect is that a non-licensee cannot argue it falls between two regimes. The full current text of Division 9.5 is available from California Legislative Information, and sections 22806 and 22807 are reproduced with their chaptering history on Justia.

Who is covered

SB 362 did not expand the scope of Division 9.5. It operates inside the existing boundaries, which means the coverage questions are the same ones that have applied since 2022.

• Transaction size. The disclosure obligations apply to a specific commercial financing offer of $500,000 or less. Larger transactions fall outside these particular requirements.
• Geography. The DFPI regulations reach offers to a recipient whose business is principally directed or managed from California — not merely a business that happens to have a California mailing address.
• Product types. Division 9.5 defines commercial financing broadly: accounts receivable purchase transactions including factoring, asset-based lending, commercial loans, commercial open-end credit plans, and lease financing intended for other than personal, family, or household purposes. Most merchant cash advances are structured as accounts receivable purchases and fall inside that definition.
• Excluded providers. Depository institutions are excluded, as are lenders regulated under the federal Farm Credit Act.
• Excluded transactions. Commercial financing secured by real property is excluded, as are certain transactions of at least $50,000 where the recipient is a vehicle dealer, a vehicle rental company, or an affiliate of either.
• De minimis activity. A person making no more than one covered transaction in California in a 12-month period, or five or fewer that are incidental to its business, is treated as exempt.

The DFPI’s final commercial financing disclosure regulations set out the definitions, calculation methods, and formatting rules in detail, including the specific rules for sales-based financing.

Why the restatement rule matters for merchant cash advances

Sales-based financing is the product category where the gap between quoted pricing and annualized cost is widest, which is why the restatement rule lands hardest here.

Consider the arithmetic without reference to any industry average. A business receives $100,000 against a 1.45 factor, owing $145,000, repaid through daily debits over an estimated seven months. The $45,000 cost is real and fixed in dollars. But it is not a cost of capital held for a year — the balance amortizes daily from the first debit, so the average outstanding balance over the term is a fraction of $100,000. Annualizing a $45,000 charge against that declining balance over roughly seven months produces a figure in a range most owners do not anticipate from hearing “1.45.” That is precisely the comparison the disclosure is designed to make visible, and after January 1, 2026, it is supposed to appear every time the funder restates the numbers.

If the structure itself is unfamiliar, our primer on what a merchant cash advance is covers the mechanics of holdbacks, reconciliation, and daily debits.

How SB 362 is enforced — and by whom

Enforcement of Division 9.5 runs through the DFPI. That is not a formality. In November 2025, the Department entered a consent order with a financial services company in connection with, among other issues, leasing equipment to California businesses without providing the required commercial financing disclosures. Enforcement of this regime is active rather than theoretical.

Providers also face an annual reporting obligation that produces a paper trail. Under DFPI regulations effective October 2023, covered providers must file a Commercial Financing Annual Report by March 15 each year covering the preceding calendar year, including transaction counts, dollar volumes, and the minimum, maximum, average, and median APRs disclosed by financing type and transaction size. The DFPI maintains filing guidance and exemptions for that report. Reports covering 2026 — the first year SB 362 applies — are due in March 2027.

What SB 362 does not do

This section matters more than any other on the page, because the most common mistake in online commentary about commercial financing disclosure laws is treating a disclosure violation as a contract defense. It generally is not, and a business owner who plans a litigation strategy around that assumption can lose ground quickly.

• It does not cap what financing may cost. SB 362 governs how pricing is communicated. It sets no maximum APR and imposes no rate ceiling on commercial financing.
• It does not create a private right of action. Division 9.5 contains no express private cause of action, and SB 362 did not add one. Section 22807 routes violations to the DFPI through the CFL or the CCFPL. California appellate authority has likewise declined to find a private right of action under the California Financing Law, reasoning that the statute provides for enforcement by the Commissioner.
• It does not void your agreement. A funder’s failure to restate the APR during your application does not, standing alone, make the financing agreement unenforceable or erase the balance. Treating a disclosure lapse as automatic cancellation is the single most damaging misconception in this area.
• It does not penalize an APR estimate that turns out to be off. Section 22805 provides that no provision of Division 9.5 imposes liability on a provider because the actual APR differs from an estimated APR disclosed in conformity with a regulation, order, or written interpretive opinion of the Commissioner — even if that guidance is later amended, rescinded, or held invalid. Because APR on sales-based financing depends on projected revenue, this safe harbor is significant.
• It does not reach backward. The new obligations attach to conduct on and after January 1, 2026. An advance taken in 2023 or 2024 is governed by the disclosure rules in force at the time.

None of this makes the communications record irrelevant to a defense. It means the record is evidence rather than a cause of action. How a deal was quoted, what the funder called the pricing, and whether reconciliation was genuinely available bear on questions California courts do decide — most centrally whether a given transaction is a true purchase of receivables or a disguised loan subject to usury analysis. Our discussion of MCA loan versus receivables characterization in California and our overview of merchant cash advance legal defenses address that distinction. Whether any theory applies to a particular agreement is a question for a licensed attorney reviewing the actual documents.

If pricing was quoted to you without an APR in 2026

Documentation is the part a business owner controls, and it degrades fast. Email threads get archived, sales representatives leave, and funding portals stop displaying historical offer screens once a deal closes.

• Preserve every communication in which a number appeared — emails, text messages, portal screenshots, term sheets, renewal offers, and any recorded or summarized sales calls.
• Note the sequence and dates, particularly which communications came after the specific offer was extended, since § 22806(b) is triggered at that point.
• Keep the formal disclosure document you received, along with the executed agreement and any addenda.
• Record which entity actually quoted the pricing. Brokers and independent sales offices are common in this industry, and identifying the provider matters.
• Consider filing a complaint with the DFPI, which is the agency with enforcement authority over Division 9.5.
• Bring the complete record to an attorney licensed in California before making payment decisions, and especially before responding to a lawsuit or a levy.

If a lawsuit has already been filed, response deadlines run regardless of any disclosure issue. Our page on merchant cash advance lawsuits in California covers the procedural timeline.

SB 362 and UCC liens

Business owners often encounter the disclosure question and the lien question in the same week, so it is worth separating them cleanly. Most merchant cash advance agreements authorize the funder to file a UCC-1 financing statement covering accounts receivable or substantially all business assets. That filing is public, and it commonly surfaces when the business applies for an SBA loan, refinances, or attempts to sell.

A disclosure violation under SB 362 does not remove a UCC-1 filing. Lien termination is a separate process with its own requirements, generally involving payoff and a filed termination statement, a negotiated release, or a challenge to the filing itself where grounds exist. Our guide to UCC lien removal explains the mechanics. The two issues can appear in the same negotiation, but they are governed by different law and resolved through different steps.

California in the wider state landscape

California is one of a growing group of states requiring commercial financing disclosures, and the regimes differ in ways that matter to a business operating across state lines. Several states require registration rather than APR disclosure. Several foreclose private enforcement explicitly. Coverage thresholds, de minimis exemptions, and the treatment of sales-based financing specifically all vary.

A business funded by an out-of-state provider, or operating in more than one state, should not assume California’s rules travel with it. Our state-by-state reference on merchant cash advance laws by state compares the frameworks, and our California merchant cash advance laws page covers the state’s broader regime.

Frequently asked questions

When did California SB 362 take effect?

January 1, 2026. The bill was chaptered as Chapter 352 of the Statutes of 2025, and the new Financial Code sections 22806 and 22807 took effect on that date.

Does SB 362 apply to merchant cash advances?

Yes, where the transaction falls inside Division 9.5. Most merchant cash advances are structured as accounts receivable purchase transactions, which the statute covers, provided the offer is $500,000 or less and the recipient’s business is principally directed or managed from California.

Can I sue my funder for violating SB 362?

Division 9.5 does not contain an express private right of action, and SB 362 did not add one. Enforcement is directed to the DFPI under section 22807. That does not mean the communications are irrelevant to a defense, but a disclosure violation is not itself a claim you file. An attorney should evaluate what theories, if any, the facts of your agreement support.

Does a missing APR disclosure cancel my advance?

No. A disclosure failure does not, on its own, make the agreement unenforceable or eliminate the balance owed. Acting on the assumption that it does — for example, by stopping payment — can create serious additional exposure, including default and acceleration.

What if my advance is over $500,000?

The Division 9.5 disclosure requirements, including the SB 362 additions, apply to specific offers of $500,000 or less. A larger transaction falls outside these particular rules, though other bodies of law may still apply.

Does SB 362 limit how much a merchant cash advance can cost?

No. SB 362 regulates disclosure and terminology, not price. It sets no APR ceiling.

My funder called the factor rate “interest.” Is that a violation?

It may be. Section 22806(a) prohibits using “interest” or “rate” in a deceptive way that could reasonably mislead the recipient, while section 22806(c) permits those terms where the metric genuinely is an annual interest rate or APR. Whether a particular statement crosses the line depends on the full context of the communication.

Does SB 362 apply to an advance I took in 2024?

The new obligations govern conduct on and after January 1, 2026. A 2024 transaction is assessed under the disclosure rules that applied then, which came from the 2018 law and the 2022 DFPI regulations.

Who enforces these rules?

The California Department of Financial Protection and Innovation. Section 22807 treats a violation as a California Financing Law violation for CFL licensees and as a UDAAP violation under the California Consumer Financial Protection Law for transactions outside the CFL.

Getting connected with a California attorney

CredibleLaw is a legal resource and attorney referral network, not a law firm. We do not provide legal advice and we do not represent clients. What we do is connect business owners with attorneys who handle commercial financing, business debt, and creditor litigation matters in their jurisdiction.

If a California funder quoted pricing without stating an APR, or if you are facing collection activity on an advance, an attorney licensed in California can review the agreement and the communications record and advise you on your options.

Request a case review at https://crediblelaw.com/free-case-review/ or call 888-201-0441 to be connected with an attorney in the CredibleLaw network.

Disclaimer: This page is provided for general informational purposes only and does not constitute legal advice. CredibleLaw is an attorney referral network and is not a law firm; no attorney-client relationship is created by reading this page or by contacting CredibleLaw. Laws change and their application depends on the specific facts of each matter. You should consult a licensed attorney in your jurisdiction before acting on any information contained here. Statutory references are to the California Financial Code as amended by Chapter 352, Statutes of 2025, and reflect the law as of the date of publication.