Guide · California commercial financing law
California AB 2116: What the New Commercial Financing Law Means for Business Owners and Brokers
On 30 September 2026 California signed AB 2116, the broadest regulation of business financing in the state since the 2022 disclosure rules. From 1 January 2028, companies that provide or broker commercial financing of $500,000 or less to small businesses will need a license from the Department of Financial Protection and Innovation (DFPI), brokers will have to publish the average and maximum APR of the deals they arranged, and several contract terms become illegal. Here is what changes, when, and what it means if you own a California business or refer California clients.
What Does California AB 2116 Do?
AB 2116 requires commercial financing providers and brokers to hold a DFPI license from 1 January 2028 to offer or arrange financing of $500,000 or less to for-profit small businesses with annual gross receipts of $16 million or less. It covers commercial loans, accounts-receivable purchases and factoring, asset-based lending, open-end credit, lease financing and, per the Legislature’s findings, merchant cash advances and revenue-based financing. Brokers must post the average and maximum annual percentage rates of the transactions they facilitated in the prior calendar year on their websites. Confessions of judgment or powers of attorney taken before default, and contract clauses that stop a business from talking about its financing terms, are prohibited, and an unlicensed provider’s agreement is generally unenforceable. The DFPI must adopt implementing regulations by the same date.
Key Dates and Thresholds
| Item | What the law says |
|---|---|
| Signed | 30 September 2026 (Governor Newsom) |
| Operative date | 1 January 2028 for licensing; the DFPI must adopt regulations by the same date |
| Who needs a license | Commercial financing providers and commercial financing brokers; a complete application filed by 1 January 2028 allows continued operation while it is pending |
| Transactions covered | $500,000 or less |
| Recipients covered | For-profit small businesses with annual gross receipts of $16 million or less (subject to statutory adjustment) |
| Products covered | Commercial loans, accounts-receivable purchases and factoring, asset-based lending, commercial open-end credit, lease financing; MCAs and revenue-based financing are named in the findings |
| Exclusions | Certain transactions involving automobile dealers and vehicle rental companies and their affiliates |
| Out-of-state providers | No physical-presence exception in the statute, so providers and brokers outside California that serve California businesses appear to be covered |
| Regulator | Department of Financial Protection and Innovation (DFPI): examinations, desist-and-refrain orders, license suspension or revocation, restitution and penalties |
California already requires written cost disclosures on commercial financing of $500,000 or less (the 2022 rules) and applied its UDAAP rules to commercial financing in 2023. AB 2116 adds licensing, supervision and conduct rules on top of disclosure. See our MCA disclosure laws by state guide for the disclosure regime.
What Changes for a California Business Owner
- Licensed counterparties. From 2028, the company that funds you and the company that arranged it must both be DFPI-licensed (or have a complete application pending). You can ask for the license number.
- No early confession of judgment. A provider cannot take a confession of judgment or a power of attorney before you default. Those clauses were already restricted in New York and voided in Texas; California now bars them before default.
- No gag clauses. A contract cannot stop you from disclosing the terms of your financing, including the provider’s product terms, so you can compare offers and talk to an adviser.
- A published APR benchmark for brokers. Every licensed broker must post on its website the average and maximum APR of the deals it facilitated in the previous calendar year. That gives owners a way to compare brokers that did not exist before.
- Unconscionable agreements are violations. Agreements found unconscionable under Civil Code section 1670.5 count as violations of the Act.
- Enforceability. A financing agreement made after 1 January 2028 by an unlicensed provider without a pending application is generally unenforceable, and recipients have defenses and claims, including restitution and damages.
Nothing in AB 2116 caps rates or fees. It is a licensing and conduct law, not a price control. Compare offers the way you always should: total amount repaid, term, payment frequency and APR side by side. The factor rate calculator and factor rate vs APR show how to put a factor-rate product and an interest-rate loan on the same footing.
What Changes for Brokers, ISOs and Referral Partners
- License required. Brokers must be licensed even when they arrange conventional commercial loans of $500,000 or less made by banks or by lenders that are not licensed under the California Financing Law. The article we rely on flags this reading as an open issue to watch, but the safe assumption is that any California referral activity needs a license from 2028.
- Website APR disclosure. The average and maximum APR of transactions you facilitated in the previous calendar year must be clearly posted. Brokers will need to calculate APR on factor-rate deals, which California’s disclosure rules already require providers to estimate.
- Examinations. Licensees are subject to DFPI examination and supervision, with recordkeeping to match.
- Timing. File a complete application before 1 January 2028 to keep operating while it is reviewed. The DFPI’s regulations, due by the same date, will set the application details.
Texas went first with a lighter model: HB 700 (in force since 1 September 2025) requires standardized disclosures on sales-based financing under $1 million, voids confessions of judgment, restricts automatic debits, and requires providers and brokers to register with the Office of Consumer Credit Commissioner by 31 December 2026, with a $1,000 initial and annual fee. California goes further by requiring a full license and APR publication. For the partner side of our business, see the RAN Funding partner program.
How RAN Funding Handles California Files Today
RAN Funding is a business financing broker, not a lender. On California files we already deliver the state-required cost disclosures with every offer, show the total amount repaid and the term next to the amount, explain factor rates against APR, and do not place products that use confessions of judgment. We will update this page as the DFPI publishes its licensing regulations and application process ahead of 1 January 2028.
- Apply once, with a soft inquiry and the last three to four months of business bank statements (four in California).
- A specialist reviews the file and presents it to the funders in our network that fit a California business of your size and industry.
- You receive the California disclosure with each offer and compare total repayment, term and payment frequency before you sign.
See what your California business qualifies for
California owners can also start with business funding in California.
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Common Questions
When does California AB 2116 take effect?
The licensing requirement and the DFPI’s rulemaking deadline are both 1 January 2028. The law was signed on 30 September 2026. A provider or broker with a complete license application filed by 1 January 2028 can keep operating while it is pending.
Does AB 2116 apply to merchant cash advances?
Yes. The Legislature’s findings name merchant cash advances, accounts-receivable financing, invoice factoring and revenue-based financing as products that were historically outside DFPI licensing, and the Act’s definition of commercial financing covers accounts-receivable purchases and the other listed products at $500,000 or less.
Does the law cap interest rates or factor rates?
No. AB 2116 is a licensing, disclosure and conduct law. It bans certain contract terms and requires brokers to publish average and maximum APRs, but it does not set a maximum rate or fee.
Do out-of-state lenders and brokers need a California license?
The statute has no physical-presence exception, so providers and brokers located outside California that finance or arrange financing for California small businesses appear to be covered. Confirm with counsel; the DFPI regulations due by 1 January 2028 will add detail.
What happens if a provider is not licensed after 1 January 2028?
An agreement by an unlicensed provider without a pending application is generally unenforceable, and the DFPI can issue desist-and-refrain orders, seek restitution, refunds, disgorgement and damages, and impose administrative penalties.
How is this different from the Texas law?
Texas HB 700 is a registration-and-disclosure regime for sales-based financing under $1 million: standardized disclosures, no confessions of judgment, limits on automatic debits, and OCCC registration by 31 December 2026 at $1,000 a year. California requires a full DFPI license, examinations and public APR disclosure by brokers, on financing of $500,000 or less.
Is RAN Funding a lender?
No. RAN Funding is a business financing broker. We present your application to the funders in our network that fit your profile and show you the approvals that come back; the funding partner you choose sets the terms. RAN Funding is paid by the lender, not by you.
Sources
- California Enacts Sweeping New Regulation of Commercial Financing (AB 2116) — Consumer Finance Monitor (Ballard Spahr), 13 October 2026
- Texas Passes Legislation to Regulate Sales-Based Financing (HB 700) — National Law Review
- Commercial Sales-Based Financing rules adoption (7 TAC Chapter 86, Subchapter C) — Finance Commission of Texas / OCCC, 19 June 2026
- CFPB Reaffirms Excluding Merchant Cash Advances From Section 1071 — deBanked, 13 October 2026
See What You Qualify For
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