When you take out a mortgage, federal law tells your lender exactly what to give you: a Loan Estimate within three business days of application, a Closing Disclosure at least three business days before closing, and a precise statement of the annual percentage rate, total loan cost, and monthly payment. These aren't suggestions. Violating them voids the lender's ability to enforce certain terms and triggers regulatory penalties.
When you take out a business loan, you get whatever the lender decides to tell you.
That asymmetry is not an accident. Congress has repeatedly extended consumer credit protections and repeatedly declined to extend them to commercial borrowers. The rationale — never fully articulated in statute — is that business borrowers are sophisticated parties capable of protecting themselves through negotiation. That framing made marginal sense when "business borrowers" meant large corporations with finance departments and outside counsel. It makes no sense for a restaurant owner who needs $75,000 to replace a walk-in cooler and is comparing offers from three online lenders, none of whom voluntarily disclose APR.
Several states have decided Congress isn't going to fix this, and they've started fixing it themselves.
What TILA Covers — and What It Doesn't
The Truth in Lending Act was enacted in 1968 as part of the Consumer Credit Protection Act. Its implementing regulation, Regulation Z, is administered by the Consumer Financial Protection Bureau. TILA requires creditors to disclose the annual percentage rate, finance charge, amount financed, total of payments, and payment schedule before credit is extended.
These disclosures are detailed, standardized, and mandatory. The required form language is prescribed by the CFPB. The APR calculation methodology is defined by federal regulation. A lender can't quote a lower APR by excluding certain fees — Regulation Z defines which fees must be included.
TILA's coverage: Consumer credit. Regulation Z defines covered credit as credit extended to a natural person primarily for personal, family, or household purposes. Business credit — even when the individual business owner is personally liable — is expressly excluded.
15 U.S.C. § 1603(1) states that TILA does not apply to "credit transactions involving extensions of credit primarily for business, commercial, or agricultural purposes."
This is not an ambiguous line. It is a deliberate carveout that has been in the statute since 1968 and has survived every subsequent amendment to TILA.
What this means in practice: A lender offering a $200,000 working capital loan to a small business is under no federal obligation to disclose the APR, total cost, fee structure, or prepayment terms. Many do disclose these things — but the decision to disclose, the format, and the accuracy are entirely at the lender's discretion under federal law.
The HUD-1 and RESPA: Same Story, Consumer Real Estate Only
The HUD-1 Settlement Statement — the two-page disclosure form that showed every fee, credit, and cost in a real estate closing — was for years the standard closing document for residential mortgage transactions governed by the Real Estate Settlement Procedures Act.
RESPA applies to "federally related mortgage loans," which means loans secured by a first or second lien on residential real property (1-4 family) originated or refinanced in connection with a federally insured lender, Fannie/Freddie eligible loans, or loans made by a lender regulated by a federal agency. That's most of the residential mortgage market.
In 2015, the TILA-RESPA Integrated Disclosure (TRID) rule replaced the HUD-1 with the Closing Disclosure for most covered transactions. The form is more detailed, standardized, and mandatory than its predecessor.
RESPA's coverage: Residential real estate. Commercial real estate transactions — including SBA commercial real estate loans, commercial mortgages, and bridge loans on commercial property — are not covered by RESPA. There is no HUD-1 equivalent for commercial real estate closings. Commercial real estate loan documents are negotiated between parties without any mandatory disclosure form.
The result: the two primary federal disclosure frameworks that protect borrowers — TILA for consumer credit, RESPA for residential real estate — leave commercial borrowers entirely unprotected.
The Commercial Lending Disclosure Gap
For decades, the absence of commercial disclosure requirements was largely invisible. The commercial lending market was dominated by banks and credit unions, which competed on relationship, reputation, and relatively transparent pricing. A small business owner building a relationship with a community bank loan officer generally knew what they were getting.
The alternative lending industry changed the equation.
Starting in the mid-2000s and accelerating after the 2008 credit contraction, a wave of non-bank commercial lenders entered the market: online term loan platforms, merchant cash advance providers, invoice factoring companies, revenue-based lenders, equipment finance companies. These lenders offered speed and accessibility that banks couldn't match. They also operated with almost no transparency.
Factor rates replaced APRs. "Weekly remittance" replaced "monthly payment." Products were structured as "purchase agreements" rather than loans specifically to avoid lending regulations and usury caps. Disclosure was discretionary and often designed to obscure cost.
By 2015, state attorneys general and consumer advocacy groups were documenting cases of small business owners borrowing at effective APRs of 100–400% without any idea of the true cost of the transaction. A 2016 Opportunity Fund study found that online small business borrowers were paying an average of 94 cents in interest and fees for every dollar borrowed annually.
Federal regulators declined to act. States started moving.
California: The First Major Commercial Disclosure Law
California SB 1235, signed into law in October 2018, was the first state to require standardized cost disclosures for commercial financing.
The law required providers of commercial financing to disclose, in writing, before the borrower enters into an agreement:
- The total amount of funds provided
- The total dollar cost of financing
- The term or estimated term
- The method, frequency, and amount of payments
- A description of prepayment policies
- The annual percentage rate or an equivalent rate disclosure expressed as an annualized rate
The implementing regulations — finalized by the California Department of Financial Protection and Innovation in December 2021 and effective December 9, 2022 — defined how APR must be calculated and presented, including a standardized disclosure form.
Coverage scope: Commercial financing transactions up to $500,000 to recipients located in California. The original $500,000 cap was later removed by California AB 424 (signed September 2023, effective July 1, 2024), extending the requirement to all commercial financing transactions regardless of amount.
Who must comply: Any provider offering commercial financing five or more times per year to California businesses.
What's covered: The law explicitly covers loans, open-end credit, factoring, asset-based lending, commercial finance leases, merchant cash advances, and other forms of commercial financing — a deliberately broad definition aimed at capturing the MCA and alternative lending market specifically.
Penalties: Civil penalties up to $500 per violation; up to $2,500 per willful violation. The DFPI has authority to pursue injunctive relief and has done so.
California's disclosure rules are now among the strictest in the country. Lenders operating nationally have had to build California-specific disclosure workflows into their origination platforms.
New York: The Strictest Framework in the Country
New York's Small Business Financing Act (signed November 2020, implementing regulations finalized December 2022, effective August 1, 2023) is the most comprehensive commercial disclosure law enacted by any state.
The law requires providers to deliver a standardized disclosure document before a small business borrower enters into a commercial financing agreement. Required disclosures include:
- Total amount disbursed
- Total dollar cost of financing
- Annual cost percentage (ACP) — New York's term for an APR-equivalent, with a specific calculation methodology prescribed by regulation
- Average monthly cost expressed as a percentage
- Total repayment amount
- Payment amounts and frequency
- Estimated term
- Prepayment terms (and estimated APR if borrower prepays)
- Whether collateral is required and what type
- Whether a broker is involved and their compensation
Coverage scope: Commercial financing transactions up to $2.5 million. Broader scope than California's original law, capturing a larger share of the small business lending market.
Who must comply: Any provider making five or more commercial financing offers per year to New York small businesses — including out-of-state lenders.
What's covered: Loans, lines of credit, sales-based financing (MCA), factoring, and "other commercial financing" — language broad enough to capture essentially any structured commercial advance.
Enforcement: New York Department of Financial Services. Penalties of $2,000 per violation and $10,000 per willful violation per transaction. The DFS has issued guidance letters and enforcement inquiries targeting non-compliant providers.
What makes NY different from CA: The ACP methodology — prescribed in 23 NYCRR Part 600 — is more detailed than California's regulation and creates specific calculation rules for variable-payment products like MCA, where determining an "annual" cost requires assumptions about repayment speed. New York requires providers to show both a "regular" ACP and, for variable products, an ACP calculated at a different assumed payment rate.
The New York law effectively requires MCA providers, for the first time, to show their customers an annualized equivalent of the factor rate. The result, when compliance is enforced, is that borrowers see a 1.3 factor rate translated to 60–90% APR rather than taking it at face value.
Five Other States Have Followed
Since California's 2018 law, five additional states have enacted commercial financing disclosure requirements:
Virginia (SB 1345, effective July 1, 2022) Requires APR disclosure and a standardized disclosure form for commercial financing up to $500,000. Virginia's law closely follows California's original framework and is administered by the State Corporation Commission.
Utah (SB 183, effective January 1, 2023) Covers commercial financing up to $1,000,000. Requires APR disclosure, total financing cost, and payment schedule. Utah's definition of covered products includes MCA and sales-based financing explicitly.
Connecticut (SB 1032, effective July 1, 2024) Requires disclosure of APR, total costs, payment amounts, and prepayment terms for commercial financing transactions up to $250,000. Connecticut added a unique requirement: providers must offer an electronic version of the disclosure document that borrowers can retain and reference.
Florida (HB 1543, effective July 1, 2024) Florida's commercial financing disclosure law covers transactions up to $500,000 and requires disclosure of APR, total payment amounts, and broker compensation. Florida's law also requires providers to clearly state whether the financing is structured as a loan or as a purchase agreement — a direct response to the MCA industry's "purchase of receivables" framing.
Missouri (SB 724, effective January 1, 2025) Missouri's version covers commercial financing up to $250,000 and is notable for including a specific provision allowing borrowers to rescind within three business days of signing — a cooling-off period with no analog in federal commercial lending law and one that specifically targets the high-pressure sales tactics documented in the online MCA market.
CFPB Section 1071: A Different Kind of Disclosure Requirement
Running parallel to state cost-disclosure laws is a federal requirement that targets a different dimension of transparency: fair lending data.
Section 1071 of the Dodd-Frank Act, enacted in 2010 but not implemented until 2023, requires financial institutions to collect and report data on small business loan applications. Required data includes: application date, loan type, amount requested, purpose, disposition, interest rate, fees, whether collateral was required, and demographic information about the principal owners of the business.
The final CFPB rule (published March 2023) phases in compliance based on volume:
- Tier 1 (2,500+ covered originations per year): data collection required by October 2024
- Tier 2 (500–2,499): April 2025
- Tier 3 (100–499): January 2026
Section 1071 data will be publicly reported, creating a transparency layer for regulators and advocates examining disparities in small business lending by race, gender, and geography. It does not require APR disclosure to borrowers — its purpose is fair lending oversight, not cost transparency.
For lenders, Section 1071 compliance represents a substantial data collection and reporting burden. For borrowers, the primary effect is indirect: regulators can now see patterns in who gets approved, at what rates, and under what terms — creating enforcement pressure for lenders whose data show discriminatory outcomes.
What Lenders Are Required to Do
For lenders operating nationally, the state-by-state patchwork creates significant compliance complexity. A lender making small business loans in California, New York, Virginia, Utah, Connecticut, Florida, and Missouri must:
- Maintain disclosure document templates that comply with each state's specific format and calculation methodology
- Determine, for each application, which state's law applies (typically based on the borrower's state of formation or operation)
- Deliver the required disclosure before the borrower signs — in some states, electronically; in others, with specific timing requirements
- For MCA and variable-payment products, calculate the APR or ACP equivalent using the jurisdiction-specific methodology for variable payments
- Disclose broker compensation separately where required (New York, Florida)
- Retain disclosure records for examination
The calculation methodology differences between states create the sharpest compliance challenge. California, New York, and Connecticut each specify different methodologies for computing the annualized rate on MCA products. A lender serving all three must run parallel calculations.
What Borrowers Can Do With This Now
If you're in California, New York, Virginia, Utah, Connecticut, Florida, or Missouri — and you're seeking commercial financing under the dollar thresholds in your state — you are legally entitled to a standardized disclosure document before you sign anything. That document must include the APR or equivalent.
What to do if you don't receive it:
In California, file a complaint with the DFPI at dfpi.ca.gov. In New York, file a complaint with the DFS at dfs.ny.gov. In other covered states, file with the state banking or financial regulation department.
Non-compliance by a lender is a violation of state law and creates civil liability. Lenders who know their rates look bad as APR often fail to provide disclosures precisely because they're hoping borrowers don't know their rights.
What to do regardless of your state:
Ask every lender, before applying, for the full disclosure of:
- Total cost of financing in dollars
- APR, annualized
- All fees (origination, draw, maintenance, prepayment)
- Repayment schedule and total payments
Reputable lenders will answer all four questions in writing. A lender who won't disclose the APR on a product that has one is telling you something.
The Direction of Travel
The regulatory direction is unambiguous: more states will adopt commercial financing disclosure laws, and the requirements will expand. California's removal of its dollar cap in 2024 set a precedent. New York's 2.5-million-dollar threshold already covers a significant majority of small business transactions.
CFPB leadership has periodically discussed extending TILA-style protections to small business credit, though no federal rulemaking has been proposed. The more likely near-term path is additional state laws and eventual federal action once enough states have created working models.
For borrowers, the practical takeaway is that your rights to disclosure depend almost entirely on where your business is located — and that even with these laws, enforcement requires you to know your rights and be willing to exercise them.
For lenders, the takeaway is simpler: the years when a factor rate or a "monthly cost" figure was sufficient disclosure are ending. States that have passed these laws are enforcing them, and the states that haven't are watching the California and New York frameworks for cues.
FundScout requires lenders on the platform to provide clear, standardized cost disclosure to matched borrowers as a condition of participation — not because a state law demands it in every case, but because borrowers who understand the real cost of a financing offer make better decisions, close more confidently, and don't end up in violation disputes that damage both parties. Transparent pricing is a compliance advantage and a commercial one.
The disclosure gap is closing. The question is whether your lender is ahead of that or behind it.
Sources
- Truth in Lending Act (TILA) — 15 U.S.C. § 1601 et seq.; commercial exemption at 15 U.S.C. § 1603(1)
- Regulation Z — 12 CFR Part 1026; CFPB implementing regulation for TILA
- Real Estate Settlement Procedures Act (RESPA) — 12 U.S.C. § 2601 et seq.
- California SB 1235 (signed October 2018) — commercial financing disclosure; Cal. Financial Code § 22800 et seq.
- California AB 424 (signed September 2023, effective July 1, 2024) — removed $500K cap from SB 1235 scope
- California DFPI implementing regulations — effective December 9, 2022; 10 CCR §§ 900–953
- New York Small Business Financing Act (signed November 2020, effective August 1, 2023) — N.Y. Financial Services Law § 801 et seq.
- New York ACP calculation methodology — 23 NYCRR Part 600
- Virginia SB 1345 (effective July 1, 2022) — Va. Code § 6.2-2228 et seq.
- Utah SB 183 (effective January 1, 2023) — Utah Code § 70C-9-101 et seq.
- Connecticut SB 1032 (effective July 1, 2024)
- Florida HB 1543 (effective July 1, 2024)
- Missouri SB 724 (effective January 1, 2025)
- Dodd-Frank Act, Section 1071 — 12 U.S.C. § 5514; small business loan data collection requirement
- CFPB Section 1071 final rule (published March 30, 2023) — 88 Fed. Reg. 35150
- Opportunity Fund, Unaffordable and Unsustainable: The New Business Lending on Main Street (2016) — documented average of 94 cents in fees and interest per dollar borrowed annually for online small business borrowers