This article explains a new California law in general terms. It is not legal advice. For advice about your own agreement, talk to a business attorney licensed in California.
What AB 2116 is
AB 2116 is a California law about business financing. Governor Gavin Newsom signed it on September 30, 2026. It expands the California Financing Law, the state's existing licensing law for lenders and brokers, to cover a wider group of business financing products.
The state agency in charge is the Department of Financial Protection and Innovation, or DFPI. It licenses finance companies and brokers and can examine their books and practices.
Until now, California's licensing law mainly covered loans. Merchant cash advances, factoring and similar products often sat outside it. According to a summary by attorneys at Ballard Spahr, the Legislature's own analysis named merchant cash advances, accounts-receivable financing, invoice factoring and revenue-based financing as products that could fall outside the DFPI's main licensing authority. AB 2116 is meant to close that gap.
You can read the full bill text on the California Legislature's site.
Does it cover your MCA?
The law applies to "commercial financing", which the bill defines to include accounts receivable purchase transactions (such as factoring), asset-based lending, commercial loans, business lines of credit and lease financing used mainly for business purposes. Merchant cash advances are a type of receivables purchase, so most will fall within it. Three tests decide whether yours is covered:
| Test | What the law says |
|---|---|
| Size of the offer | A specific offer of $500,000 or less |
| Size of your business | A for-profit business with annual gross receipts of no more than $16 million, or a higher level as adjusted by the state every two years |
| Purpose | Used mainly for business, not personal or household, purposes |
There are some exclusions, for example financing secured by real estate, certain transactions with vehicle dealers and rental companies, and companies that make only one or a handful of these deals in California in a year. Some of these exclusions may not reach the separate license requirement, which is one of the questions the DFPI or the Legislature may need to clarify.
Where the funder is located doesn't settle it. The Ballard Spahr summary says the licensing rules generally turn on the activity and where the business receiving the money is located, so an out-of-state funder or broker working with a California business should assume the law may apply.
The key dates
| Date | What happens |
|---|---|
| September 30, 2026 | AB 2116 signed into law |
| Now through 2027 | Existing California rules still apply, including the disclosures funders already give on offers of $500,000 or less |
| January 1, 2028 | Most of the new rules start, including the limits on contract terms below. A covered agreement signed from this date is generally not enforceable unless the funder is licensed or has a complete application pending. |
| July 1, 2028 | Funders and brokers of covered financing generally need a DFPI license. Those that file a complete application by this date can keep operating while it's reviewed. |
Agreements signed before January 1, 2028 aren't caught by the new enforceability rule. Attorneys who have reviewed the law have also pointed out open questions, such as how agreements signed between January and June 2028 will be treated, so expect more guidance from the DFPI before then.
What changes for owners
For covered financing, starting in 2028, the law sets these rules for funders and brokers:
- No confession of judgment up front. A funder or broker can't take a confession of judgment or a power of attorney from you before you default. A confession of judgment is a signed statement that lets a funder get a court judgment quickly, without a normal lawsuit, if it says you've defaulted.
- You can talk about your terms. Agreements can't stop you from sharing information you get through your dealings with the funder, including the terms of its products.
- Unfair terms have consequences. An agreement found unconscionable under California law counts as a violation of the new rules, and unfair, deceptive or abusive practices are prohibited.
- Licensing matters for enforcement. As noted above, a covered agreement generally isn't enforceable if the funder isn't licensed and has no complete application pending.
- Brokers must post rates. A broker must show on its website the average and maximum annual percentage rates (APRs) of the financing it arranged in the most recent calendar year. That gives you a new way to compare brokers.
One thing the law doesn't do: it doesn't erase what you owe. Don't stop making payments or ignore your agreement because of something you read about this law. If you think a term in your agreement is a problem, talk to a business attorney first.
Does my funder or broker need a license?
If the financing is covered, then from July 1, 2028, generally yes, both the company that provides the money and any broker involved. The law defines "broker" broadly. It includes anyone who, as a business, does things like:
- sends your bank statements, card account numbers, credit score or similar sensitive data to a funder, expecting to be paid for the referral
- negotiates with a funder on your behalf
- advises you on an offer based on your sensitive data
- helps prepare your application or other financing documents
- tells you a funder's approval decision
- charges you a fee for help with your application
So a company that calls itself a "marketing partner" or "consultant" may still count as a broker if it does these things.
How to check
- Ask the funder or broker in writing whether it holds a California Financing Law license, and for its license number.
- Look the company up by its exact legal name on the DFPI's Regulated Entities List.
- Before July 1, 2028, the new license requirement isn't in force yet, so a missing license isn't a red flag on its own today. After that date, it's worth asking every time.
What doesn't change
- An MCA is still an MCA. It's a purchase of future receivables, with a factor rate and a fixed total payback. The law changes who needs a license and which terms are allowed, not how an advance works.
- Disclosures you already get. Since an earlier California law, funders must already disclose key terms on offers of $500,000 or less, including the amount financed, the total cost, the term or estimated term, payment amounts and frequency, and the prepayment policy. Our guide to calculating the cost of an MCA shows how to use those numbers.
- Your current agreement. The law doesn't rewrite an agreement you already signed.
- Other states. AB 2116 is California law. If your business is located elsewhere, it likely doesn't apply to you, though your own state may have its own rules.
Many details will depend on how the DFPI puts the law into practice, including the application process and how the APR rules apply to products like merchant cash advances.
What Bylt Capital is doing
Bylt Capital provides merchant cash advances, lines of credit and equipment financing directly, and acts as a broker for other products, so this law applies to our own business too. Bylt Capital, LLC is licensed where required, and a list of state licenses is available on request through our funding desk. All financing is subject to underwriting and approval.
What to do next
- Gather every agreement you have and note the amount, the funder or broker, and the date you signed each one.
- Add every advance to the free Bylt Capital tracker so you can see your balances, payments and payoff dates in one place.
- Keep the cost disclosures you received with each offer, and compare new offers on total payback.
- From 2028, ask any funder or broker for its California license number before you sign.
- If you've been asked to sign a confession of judgment, or a term in your agreement worries you, talk to a business attorney.
Founder and Chief Executive Officer, Bylt Capital
Daniel Morgan is the Founder and Chief Executive Officer of Bylt Capital, a direct provider of merchant cash advances, lines of credit, and equipment financing for small and mid-sized businesses. He began his career in merchant cash advance origination, where he advised business owners on funding options before taking on a team leadership role. He then moved into syndication, co-investing in advances alongside established funders, and built that into direct funding of smaller transactions. He later raised institutional capital to found Bylt Capital.
Having worked across origination, syndication, and underwriting, Daniel brings a full-cycle view of business funding. He leads Bylt Capital's mission to give business owners clear, transparent information about their financing before they commit.