# Commercial Financing Disclosure Laws for MCA Funders

- Author: TrueBankFlow (https://truebankflow.com)
- Published: 2026-10-17
- Category: Lending compliance and borrower data
- Canonical: https://truebankflow.com/blog/commercial-financing-disclosure-laws

> Which states have commercial financing disclosure laws, what MCA funders and business lenders must disclose and how estimated APR is calculated.
Commercial financing disclosure laws make MCA funders and business lenders show a small business the cost of an offer before it signs. California, New York and Virginia are leading examples. The disclosures list the amount funded, the finance charge, payments and an APR or estimated APR, which for a sales-based advance rests on the merchant's sales history.

## Which states have commercial financing disclosure laws?

Commercial financing disclosure laws are state statutes that require a cost disclosure when a provider makes a specific offer of business credit. California and New York have them, and Virginia has a sales-based financing law with its own registration. Each state sets its own scope, so a funder must check every state where its merchants sit.

The three states take different shapes:

- **California** issued regulations that took effect on December 9, 2022. The [California DFPI announcement of its commercial financing disclosure regulations](https://dfpi.ca.gov/press_release/dfpis-commercial-financing-disclosure-regulations-approved-to-become-effective-as-of-december-9-2022/) says they reach a wide range of providers, naming installment loans, open-end credit, factoring and merchant cash advances, and that providers must disclose an annual percentage rate calculated for the transaction.
- **New York** placed its rules in Article 8 of the Financial Services Law. Section 803 sets the content of a sales-based financing disclosure.
- **Virginia** regulates sales-based financing in its own chapter of the state code, which requires providers and brokers to register and to make disclosures at the time of an offer.

Other states have taken up similar bills. Treat this list as a starting point, not a full map, and confirm each state's current law with counsel before you send offers there.

## Items a New York commercial financing disclosure must show

A New York commercial financing disclosure for a sales-based deal must show the total financing, the cash actually disbursed after fees, the finance charge, an estimated APR, the total repayment, the estimated term, payment amounts and frequency, other fees, prepayment terms and any collateral. It is given at the time of a specific offer, in the format the state prescribes.

[New York Financial Services Law section 803](https://www.nysenate.gov/legislation/laws/FIS/803) lists the items in order. For a funder used to quoting only a factor rate, a few of them deserve attention:

- **Disbursement amount.** If fees are deducted or withheld at funding, the disclosure shows the smaller figure the merchant actually receives.
- **Estimated APR.** It must include fees and finance charges, not only the factor.
- **Estimated term.** The period the periodic payments take to reach the total repayment.
- **Average monthly payment.** Required when payments are not monthly, and also when they vary with sales.
- **Prepayment.** Whether paying off early still costs the unpaid finance charge, with the percentage and the maximum dollar amount.

The finance charge and APR are terms borrowed from consumer lending. A funder that has never computed them for an advance needs a method, a calculator it trusts and a record of the inputs for each offer.

## How do commercial financing disclosure laws estimate APR on an advance?

Commercial financing disclosure laws estimate APR on a sales-based advance by projecting the merchant's future sales, using that projection to set the payment amounts and the term, and then solving for the annual rate. New York gives providers two ways to project sales: a historical method and an opt-in method.

Under New York's **historical method**, the provider uses the merchant's average sales or revenue over a fixed period of one to twelve months. That period can be the months just before the offer, or the average of the highest-sales months in the last twelve. The provider must use the same period for all its products.

Under the **opt-in method**, the provider picks a projected sales figure for each disclosure. In exchange, it joins a review process the state sets and reports its estimated APRs against the APRs that actually resulted, each year. If the gap is too wide, the state can require the provider to switch to the historical method.

Either way, the provider tells the state which method it uses. The choice is not a formality. A historical figure is easy to defend because it comes from records. An opt-in figure is more flexible but invites scrutiny each year.

The arithmetic itself is the same as any APR calculation on an advance. The guide to [the inputs an MCA APR calculation needs](/blog/mca-apr-calculation#inputs-to-an-mca-apr-calculation) walks through fees, payment frequency and periods per year in detail.

## A worked estimated APR for a commercial financing disclosure

A worked example shows why the sales projection drives the estimated APR. The payback stays fixed, so lower sales stretch the term and lower the annual rate, while higher sales shorten it and raise the rate. Two merchants with the same contract can receive very different disclosed APRs.

The figures below are an example only. To keep the arithmetic visible, they assume monthly remittances. Real advances usually collect daily or weekly, which changes the result.

- Purchase price: $50,000
- Fees withheld at funding: $1,500, so the disbursement amount is $48,500
- Factor rate: 1.30, so the total repayment is $65,000
- Holdback: 10% of monthly sales

| Projected monthly sales | Monthly remittance | Estimated term | Estimated APR (monthly payments) |
| --- | --- | --- | --- |
| $100,000 | $10,000 | 6.5 months | about 101% |
| $80,000 | $8,000 | about 8.1 months | about 83% |

The rates come from solving for the monthly rate that makes the payments equal to the $48,500 disbursed, then multiplying by 12. Two lessons follow. First, using the purchase price instead of the disbursement understates the APR, because the merchant repays the full $65,000 on less cash. Second, a funder that overstates sales overstates the APR too, and one that understates sales does the reverse, so neither direction is safe.

Payment frequency matters as much as the sales figure. If the same $10,000 a month were collected as roughly $476 on each of 21 business days, the merchant would hand back cash sooner, and the estimated APR would come out higher than the monthly version in the table. Run the calculation on the schedule the contract actually uses, not on a tidier one.

## Merchant bank statements behind the commercial financing disclosure

The sales figure behind a historical-method disclosure usually comes from the merchant's bank statements. Deposits are the funder's best record of what the business actually took in, and each month's total feeds the average that sets the payment and term. The disclosure is only as accurate as that average.

Statements need cleaning before they become sales. Transfers between the merchant's own accounts, loan proceeds, refunds and owner contributions all land as deposits but are not revenue. Leaving them in raises the average and shortens the projected term. Card processor batches, by contrast, are often the purest sales signal.

Seasonality is the next issue. A landscaper or a ski shop can show a strong summer or winter and a thin off-season. New York's option to average the highest-sales months produces a larger sales figure, a shorter term and a higher estimated APR than a plain trailing average for the same merchant. Whichever period you choose, the statements should show the months used, so a reviewer can rebuild the number.

Young businesses add a problem. A merchant with five months of history cannot supply a twelve-month average, and the choice of period has to be applied the same way across products. The guide to [reading bank statements for a new business](/blog/bank-statement-income-for-new-business) covers what a short history can and cannot show.

Keep the statements and the calculation together. If the state or the merchant later asks how a disclosed APR was reached, you want the monthly totals, the excluded items and the period used in one place. [TrueBankFlow](/) builds monthly deposit totals from uploaded statements, lets the analyst exclude transfers and one-time items, and records those choices in a report for the deal file.

## Commercial financing disclosure errors that reach the merchant

Commercial financing disclosure errors usually reach the merchant through rushed offers rather than bad math. A broker quotes a factor rate before the disclosure is ready, fees are left out of the disbursement, a renewal goes out on the old projection, or the signed copy never makes it into the file.

Common failures include:

- **The offer goes out before the disclosure.** The disclosure belongs with the specific offer, not after the merchant says yes.
- **Fees are missing from the disbursement.** An origination or wire fee taken at funding must reduce the cash figure the APR is built on.
- **A stale sales figure.** A renewal or a revised offer needs a fresh projection under the method you registered.
- **Broker compensation left off.** Virginia's sales-based financing chapter, [Title 6.2, Chapter 22.1 of the Code of Virginia](https://law.lis.virginia.gov/vacodefull/title6.2/chapter22.1/), requires the provider to disclose whether it will pay a broker directly, and how much.
- **No signed copy on file.** Keep the disclosure, the inputs and the merchant's signature together under your [loan file retention schedule](/blog/loan-file-retention-requirements).

The statements themselves raise a consent question. If an ISO collects the merchant's statements and passes them to several funders, the merchant should have agreed to that sharing, and a written [borrower authorization form](/blog/borrower-authorization-form) is the cleanest record of it.

Finally, keep the disclosure method in your procedures, not in one analyst's head. Write down which sales period you use, which deposits you exclude, how you set payment frequency and who checks the result before it goes out. That written method is what lets two analysts produce the same APR for the same merchant.