Skip to main content
SolutionsIndustriesInvoicingPurposeBlogClover Support
Talk to a Payments Expert(818) 654-4449
← Blog
3 min read

AB 2116: California's New Licensing Law for Merchant Cash Advances and Factoring, Explained

By Yan Payments

What does AB 2116 actually do?

AB 2116, signed by Governor Newsom on September 30, 2026, brings merchant cash advances, invoice factoring, and similar small-business financing products under California’s existing lending oversight law, the California Financing Law. Starting in 2028, the companies that sell and broker these products will need a state license, instead of operating with no state licensing requirement at all, which is how most of this industry runs today.

Who does this cover, and who’s exempt?

The law applies to “commercial financing” transactions of $500,000 or less made to a business based in California, or to financing a California business uses for its California operations. That $500,000 cap is the same threshold used in SB 362, the factor-rate disclosure law that took effect this past January. The two laws work together: SB 362 made providers disclose the real cost of an offer, and AB 2116 makes the providers themselves get licensed.

Covered products include:

  • Merchant cash advances (MCAs), where a company buys a share of your future card sales or receivables
  • Factoring and other accounts-receivable purchase deals
  • Similar small-business financing arrangements under the $500,000 cap

Banks, credit unions, and a handful of other already-regulated lenders are generally exempt, since they’re licensed under other state or federal frameworks already.

When do the new rules actually kick in?

This is the part worth getting right, because legal analyses of the bill don’t all agree, and the text itself appears to leave a gap. Here’s what’s consistently reported:

  • January 1, 2028: a covered financing agreement becomes unenforceable unless the provider is licensed by the DFPI, or has a complete license application pending.
  • July 1, 2028: this is the date most law firm summaries give as when providers and brokers must actually hold a DFPI license to operate.

Several legal commentators have flagged that this creates a roughly six-month window where the enforceability rule and the licensing deadline don’t line up. Check directly with the DFPI or counsel once implementing rules come out, due by January 1, 2028.

What changes for a merchant considering an MCA?

Not much right away. Nothing in AB 2116 bans merchant cash advances or caps what they can cost. What it adds, once fully in force, is that the company offering you that advance has to be licensed by the state, giving the DFPI a hook to investigate complaints and revoke a bad actor’s ability to operate in California.

Two other provisions matter:

  • Brokers will have to publish, on their own website, the average and maximum APR of deals placed in the prior calendar year, a number you can ask for now as a gut check.
  • Providers will be barred from taking a confession of judgment or power of attorney before an actual default.

What should you do between now and 2028?

  1. Ask for the APR in writing, not just the factor rate (already required by SB 362).
  2. Ask whether the company expects to pursue DFPI licensure once AB 2116’s requirement takes effect.
  3. Read whatever you’re signing for a confession of judgment or power of attorney clause now.
  4. Compare an MCA against other working-capital alternatives before signing.

This is general information about a new California law, not legal advice.

If you’re weighing financing options, our invoicing tools can help you get paid faster and reduce how often you need outside capital in the first place.

Sources

← Back to all posts