Business loans in California: what a funder must show you, and where the state can help

State programs like IBank's loan guarantees and CalCAP can help you qualify at a lender [5][6]. California was first. SB 1235, passed in 2018, set up what the state legislature's banking committee calls a "first-in-the-nation disclosure framework" for small business financing [4]. The law sits in the Financial Code, Division 9.5, sections 22800 to 22806, and the detailed rules from the Department of Financial Protection and Innovation (DFPI) sit in Title 10 of the California Code of Regulations, starting at section 900 [4][1].

The rules took effect on Dec 9, 2022. Each section's history note reads "operative 12-9-2022" [1][3]. Under section 22802, a covered provider must get your written acknowledgment, at the outset of an offer, of six things: the funds provided, the total dollar cost, the term, how and how often you pay, the prepayment policy, and the cost as an annualized rate [4].

Two limits decide whether your offer is covered. First, size: the law protects a "recipient," which it defines as a person presented a specific offer of $500,000 or less [4]. Second, who is offering: the law excludes depository institutions, meaning banks and credit unions, along with a few narrow cases such as lenders under the federal Farm Credit Act and very occasional lenders [4].

• Covered: online lenders, merchant cash advance providers, factoring companies, lease and asset-based funders making offers of $500,000 or less [4][13].
• Not covered: banks and credit unions, and offers above $500,000 [4].
• Not covered: personal or household credit, which other laws handle.

This is general information, not legal advice, as of Oct 20, 2026.

A merchant cash advance is a purchase of future receivables, not a loan. It is priced with a factor rate, so the funder never quotes interest. California still makes the funder translate that cost into an estimated APR. The rule calls the second row "Estimated Annual Percentage Rate (APR)" and requires this line beside it: "APR is the estimated cost of your financing expressed as a yearly rate" [1].

The estimate rests on a guess about your sales. The disclosure has to state the average monthly income the funder assumed, and warn that "since your actual income may vary from our estimate, your effective APR may also vary" [1]. Read that number closely. On an advance collected by a split of sales, if the funder assumed more monthly sales than you really bring in, the real payback will run longer and the true APR will be lower; if it assumed less, payback runs faster and the APR rises.

For a loan or line of credit, the same idea applies with plainer wording. The closed-end table must say "Your APR is not an interest rate" and explain that "Your APR may be higher than your interest rate because APR incorporates interest costs and other finance charges" [2]. That one sentence catches a common trap: a low stated rate with fees added on top.

Many California owners hear about an offer from a broker, a lead site or a funding desk rather than the funder itself. The rules close that gap. Section 952 says that before communicating a specific offer, "a broker shall transmit the unaltered disclosures received from the financer to the recipient" [3].

The funder has duties too. It must hand compliant disclosures to the broker with every specific offer, keep evidence of when you got them, and keep a copy of each disclosure "for a period of at least four years" [3]. A broker may not present an offer at all unless it passed the disclosure on, or the funder confirms it already sent it to you [3].

• Ask any middleman for the funder's disclosure table before you discuss terms.
• Check that the funder's name appears in the first row: the rule wording is "This is how much funding [name of financer] will provide" [1].
• If the numbers you were told by phone differ from the table, the table is the funder's own statement. Ask why they differ.

Batch Capital, our funding team, is not a lender. When an offer comes through us, the funder is named in your agreement, and its disclosure is the document to read. This is general information, not legal advice, as of Oct 20, 2026.

California's main state programs do not lend to you directly. They back a lender so it can say yes to a business it might otherwise turn down. Each one below was checked on its official page on Oct 20, 2026.

IBank's guarantee can back start-up costs, construction, inventory, working capital, expansion, agriculture and lines of credit [5]. Applications run through one of seven Financial Development Corporation partners around the state, which also give technical help [5]. IBank reports 760 loans guaranteed in fiscal year 2022 to 2023 [5]. It will not accept an individual as the borrower; the borrower must be the business, though a person can guarantee the loan [5].

CalCAP for Small Business is part of the federal State Small Business Credit Initiative. The Treasurer describes it as a tool for lenders "when a small business presents a solid business plan but has underwriting challenges" [6]. You do not apply to CalCAP; you ask your lender whether it participates.

SBA loans, such as the 7(a) and 504, are made by banks and other lenders, with the SBA backing part of the loan. California's SBA district offices can point you to lenders, counselors and programs in your county. These are the offices we confirmed on sba.gov on Oct 20, 2026.

Read our SBA loans guide for the rate caps, fees and timelines that apply in every state.

1. Confirm the offer is covered: nonbank funder, $500,000 or less [4].
2. Get the disclosure table for every offer, in writing, before you sign anything [3][4].
3. Compare the APR rows, then the Finance Charge rows, side by side [1].
4. Check the income estimate behind the APR on any sales-based offer [1].
5. Read both Prepayment rows: early payoff may not cut the finance charge [1].
6. Ask a lender whether it works with IBank's guarantee or CalCAP if you were declined [5][6].

To turn any offer into dollars and an estimated APR yourself, use the offer comparer. For how advances are collected and reconciled, read how a merchant cash advance works. Other states' rules are on our state disclosure law table.

This is general information, not legal advice, as of Oct 20, 2026.