California Tightens Oversight on Commercial Financing Law
New licensing rules and bans on predatory contract terms will affect commercial lenders and small business borrowers.
Updated on Oct. 15, 2026 in Financial Services
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Governor Gavin Newsom signed the Protect Small Businesses from Predatory Lending Act into law to increase oversight of commercial financing. The legislation brings merchant cash advances under California's regulatory framework to improve transparency for the state's 4 million small businesses.
Why it matters
The law addresses widespread concerns regarding high-cost merchant cash advances, which currently carry an average annual interest rate of 94% with some outliers reaching 358%. It aims to curb restrictive contract terms that have historically left small business owners with limited legal recourse.
California is home to 4 million small businesses that will be impacted by the new oversight of merchant cash advances. The law targets products with average annual interest rates of 94%, significantly higher than traditional financing benchmarks.
The players
Gavin Newsom
The Governor of California who signed the legislation into law.
The details
The Act expands the California Financing Law, requiring commercial financing providers and brokers to obtain state licenses and adhere to new transparency mandates. It specifically bans the use of confessions of judgment or powers of attorney prior to a default, a move designed to prevent predatory collection tactics. By bringing these transactions under state supervision, regulators gain new authority to oversee the terms of service for small business lending.
Timeline
January 1, 2028: Expanded oversight framework takes effect.
July 1, 2028: Licensing requirements for providers and brokers take effect.
Market Landscape
This legislation marks a significant expansion of the existing California Financing Law to cover the previously loosely regulated merchant cash advance market. It follows a national trend of states moving to increase disclosure and accountability for non-bank commercial lenders.
Small business owners should audit their current financing contracts for confessions of judgment to ensure compliance before the law takes full effect. Businesses that rely on cash advances should factor potential shifts in lender availability and contract costs into their 2028 financial planning.
The takeaway
Operators must prepare for a shift toward higher transparency in alternative lending as California moves to codify protections against high-interest financing. Review your current capital agreements with counsel to identify clauses prohibited under the new framework before January 2028.
What happens next
Providers and brokers must prepare for the new licensing application process, which is set to begin before the July 1, 2028, compliance deadline.
Further reading
For more on regulatory updates, visit the California Financial Services section.
Source note: This article includes information reported by Hometown Station | KHTS FM 98.1 & AM 1220.
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