A California business owner comparing funding offers this year has something most owners in other states don't: a legal right to see the annual percentage rate on most non-bank small business financing offers of $500,000 or less, and to hear it again whenever a provider quotes pricing during the application. APR is the one figure that puts a term loan, a merchant cash advance and a factoring deal on the same scale.
APR only helps if you know what it is measuring, so start with a baseline of your own. Plug the amount, term and quoted rate into FundBetter's business loan calculator and you get the payment, the total repaid and the interest in plain dollars. If an offer arrives priced as a factor rate, the same page explains why that number can't be compared with an interest rate directly, which is the gap California's disclosure rules were written to close.
What California requires providers to show you
California passed the country's first commercial financing disclosure law in 2018. Providers of business loans, lines of credit, lease financing, factoring, asset-based lending and sales-based financing such as merchant cash advances must give a standardized disclosure, including the APR, when they make a specific offer of $500,000 or less. Banks and other depository institutions are exempt, as are deals secured by real estate, along with a few narrower categories.
SB 362 tightened those rules on January 1, 2026. Once a provider has extended a specific offer, any time it states a charge, a pricing metric or a financing amount for that offer during the application, it must state the APR too, using the words "annual percentage rate" or "APR." The law also bars using "interest" or "rate" in a way likely to mislead, so a funder can no longer send the disclosure once and then quote "a 1.25 rate" on later calls without also stating the APR.
More is on the way. A new law signed September 30, 2026 extends state licensing to providers and brokers of small business financing offers of $500,000 or less. AB 2116 also bans confessions of judgment taken before a default and will require brokers to post the average and maximum APRs of the deals they arranged.
Why the same factor rate can carry different APRs
A factor rate fixes the total repayment on day one. A 1.25 factor on $100,000 means $125,000 back. What the factor doesn't tell you is how quickly that money leaves your account, and speed is what drives the APR.
Imagine a hypothetical Fresno landscaping company accepting that $100,000 at 1.25, repaid in 52 weekly debits of about $2,404. The APR works out to roughly 46 percent. Compress the same deal into 26 weekly payments of about $4,808 and the APR climbs to nearly 90 percent. The dollar cost is $25,000 in both versions. The second one asks for the money back twice as fast, so the company has the use of it for half as long.
That is why the APR deserves more attention than the factor rate: it combines price and repayment speed in one figure.
Keep two limits in mind. On a merchant cash advance, the APR is an estimate, because the real term depends on how fast your sales come in. And with factor-rate pricing, the total is set up front, so paying off early may save nothing unless the contract includes a prepayment discount. The disclosure must describe the prepayment policy, so read that line before you sign.
How to compare offers side by side
Put every offer through the same four questions. How much money will land in your account once fees are taken out of the proceeds? What is the total you will pay back, in dollars? How often are payments collected, and how large is each one? And what APR appears on the disclosure?
If a broker is involved, ask how the broker is paid. If a covered provider quotes a rate, fee or funding amount during the application without mentioning APR, ask for it in writing, since SB 362 says it should already be there. Banks are exempt from the state disclosure, so ask a bank for its APR and total cost too.
Frequently asked questions
Does California's disclosure law cover every business loan? No. It applies to specific commercial financing offers of $500,000 or less, including loans, lines of credit, lease financing, factoring and merchant cash advances. Banks and other depository institutions are exempt, and so are deals secured by real estate, among a few narrower exemptions.
Is the APR the same as the interest rate? Not necessarily. APR expresses the total cost of financing as a yearly rate, including fees, and on factor-rate products it also reflects how quickly you repay.
Why does the APR on a merchant cash advance change with my sales? On an advance repaid as a share of card sales, a slow stretch lengthens the term without raising the dollar total, which lowers the effective APR, assuming no added fees are triggered. A busy stretch shortens the term and raises it.
When does AB 2116 take effect? Most provisions start January 1, 2028. From that date, a covered agreement generally cannot be enforced unless the provider is licensed or has a complete license application pending, though deals entered into before January 1, 2028 are not affected, and the licensing requirement itself becomes operative on July 1, 2028.
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