California Will Require MCA Brokers to Get Licensed — What It Means for You

For years, merchant cash advance funding in California lived in a regulatory gap: non-loan products like MCAs and factoring did not require a state license at all. Anyone could broker or fund deals with no examination, no reporting, and no license to lose. On September 30, 2026, Governor Newsom signed AB 2116, and that gap is closing. The law folds MCA and factoring providers and brokers into the California Financing Law — with licenses, disclosures, and a ban on confessions of judgment to follow.

This is the single most important regulatory development our industry has seen in years, and it affects you whether you apply tomorrow or in 2028. Here is what the law does, the dates that matter, and — most importantly — how to use the new rules to shop safely right now.

What the new law actually does

AB 2116, authored by Assemblymember Pilar Schiavo, brings commercial financing providers and brokers under the California Financing Law for transactions of $500,000 or less to small businesses. The covered products are the whole MCA world: merchant cash advances, factoring, accounts-receivable purchases, asset-based lending, commercial loans, open-end credit, and certain lease financing.

Three changes do the heavy lifting:

• Licenses for everyone in the chain. Providers and brokers of non-loan products like MCAs previously needed no license. Now they do — along with recordkeeping, reporting, advertising, and examination requirements.
• Published pricing for brokers. Brokers must publish the average and maximum APR of the transactions they facilitated during the preceding year. Providers file detailed transaction and APR reports starting in 2029.
• Real enforcement. A covered commercial-financing agreement is unenforceable unless the provider is licensed, has a complete application pending, or entered the deal before January 1, 2028. Plain English: no license, no collection.

The law also anticipates the industry's favorite dodge. Calling yourself an "ISO," "consultant," "vendor," or "technology platform" will not control whether you need a license — the activity does. Exemptions are narrow: depository institutions, real-property-secured transactions, certain vehicle-dealer and rental transactions, and businesses doing one or fewer (or only a few incidental) transactions in the state per year.

The two dates that matter

Two operative dates carry the weight of the law:

• January 1, 2028 — substantive provisions begin. The ability-to-repay analysis requirement and the prohibition on confessions of judgment (pre-default COJs and powers of attorney) take effect. Agreements entered before this date are protected.
• July 1, 2028 — licensing begins. Providers and brokers must hold a license by this date. A complete application submitted by July 1 lets a provider or broker keep operating while the DFPI (the state's financial regulator) reviews it.

One wrinkle to watch: the January-to-June 2028 transition window is an open compliance question — the new rules apply before the licensing machinery is fully running. The DFPI has not yet built out its application window or guidance, so expect the details to evolve. This post covers the shape of the law as enacted; it is educational, not legal advice.

What changes for California business owners

If you are shopping for MCA or revenue-based funding in California, here is the practical effect:

By 2028, a legitimate broker will carry a license and publish pricing. That is the single biggest change for you as a borrower. Today, telling a good broker from a bad one requires detective work (we wrote a full guide on how to tell a legit MCA company from a scam). Under AB 2116, legitimacy leaves a paper trail: a state license and a published average and maximum APR for the broker's prior-year deals. Read that disclosure before you sign — it tells you what borrowers like you actually paid.

Confessions of judgment are being regulated out. A confession of judgment lets a funder enter a judgment against you without a lawsuit if you default — one of the most aggressive clauses in MCA agreements. California is banning pre-default versions from January 2028. You should not wait: refuse the clause today, and treat any agreement that still contains one as a deal-breaker.

Deceptive practices get a statutory ban. The law adds explicit prohibitions on unlawful, unfair, deceptive, and abusive practices, plus restrictions on confidentiality clauses that keep borrowers from talking about their deals. If a broker or funder ever told you not to discuss your terms with anyone else, that era is ending.

How to shop for MCA funding under the new rules

The law does not fund anyone by itself — you still have to pick the right broker and the right offer. Use the new rules as your shopping checklist:

1. Ask about licensing status. "Are you licensed — or in the process of becoming licensed — under California law for this deal?" The answer tells you whether the shop plans to exist past 2028.
2. Ask for the published APR disclosure. Brokers will be required to publish prior-year average and maximum APR. Even before the mandate kicks in, a broker who volunteers this data is showing you their cards.
3. Check the agreement for a confession of judgment. Search the documents for "confession of judgment" or "COJ." If it is there, push back — the state has already decided this clause does not belong.
4. Get the funder's name and terms in writing. A broker should tell you who is actually funding the deal and what the terms are. If the funder stays anonymous, so should your signature. See direct lender vs. broker, honestly compared for how the relationship should work.
5. Do the cost math yourself. Published APRs and factor rates both describe cost — learn to translate between them. Our guide on the true cost of an MCA, explained with real numbers walks through the arithmetic.

This is how a broker should already be operating: pre-screening your file against real funder minimums, naming the funder, and showing you the true cost before you sign. The law is catching up to the standard the honest shops already hold.

Red flags that still matter (licensed or not)

A license is a floor, not a guarantee. These warning signs still end conversations:

• Pressure to sign today. Legitimate funding does not expire at midnight. High-pressure closes are the oldest trick in the book — see "guaranteed approval" red flags.
• No disclosures, no names. A broker who will not name the funder or show you terms in writing is hiding the most important facts of the deal.
• A confession of judgment still in the paperwork. The state is banning these for a reason. Refuse them now.
• Terms that change at signing. If the numbers on the final documents do not match what you were quoted, walk away — licensed or not.

California is the first state to license MCA brokers this comprehensively, and others are watching. Whether or not your state follows, the shopping discipline is the same everywhere: license, disclosures, no COJ, named funder, real cost math.

Frequently asked questions

Does AB 2116 affect my existing MCA agreement?

No — agreements entered before January 1, 2028 are protected by the law's transition provisions. The new requirements apply to covered transactions entered on or after the operative dates.

I am not in California. Does this matter to me?

The law covers California transactions, but its shape is likely to influence other states: broker licensing, published APR disclosures, and COJ bans are all live debates elsewhere. The shopping checklist in this guide works in every state.

What is a confession of judgment?

A clause that lets a funder obtain a court judgment against you without filing a lawsuit or giving you a chance to defend yourself. Pre-default versions are banned in California from January 1, 2028 — and you should refuse to sign them anywhere, starting now.

When do brokers have to publish their APR?

Under AB 2116, brokers must publish the average and maximum APR of transactions they facilitated in the preceding year, as part of the law's disclosure regime. Full licensing requirements are operative July 1, 2028; DFPI guidance on the exact reporting mechanics is still being built.

How is "average APR" different from a factor rate?

A factor rate (e.g., 1.30) is the multiplier that turns an advance amount into total payback; APR expresses the annualized cost of the money. They measure the same underlying cost in different units — which is exactly why you should learn both. See our true-cost guide for worked examples.

Will this law make MCA funding more expensive in California?

Compliance costs money, so some of it may pass through — but the law's purpose is transparency and competition: published pricing and licensed brokers let borrowers compare real costs, which historically pushes costs down for informed shoppers. The expensive deal is the one you could not compare.