- 1SB-1247 takes effect January 1, 2027, requiring all MCA providers in California to provide standardized disclosure forms
- 2Merchants receive a mandatory 3-business-day cooling-off period to cancel any advance without penalty
- 3Disclosures must include estimated annualized cost of capital, total repayment amount, and payment frequency
What Is California SB-1247?
Governor Gavin Newsom signed SB-1247 into law on February 20, 2026, making California the fifth state to impose standardized disclosure requirements on merchant cash advance providers. The legislation, authored by State Senator Maria Lopez (D-Los Angeles), passed the California State Assembly with bipartisan support in a 58-14 vote.
The bill represents the most comprehensive MCA regulation enacted at the state level to date, going beyond previous disclosure requirements in New York (Commercial Finance Disclosure Law, effective 2024) and Virginia (HB 1027, effective 2023).
What Does SB-1247 Require?
Standardized Disclosure Form
All MCA providers must present merchants with a one-page disclosure document before the merchant signs any agreement. The form must include:
- Estimated Annual Percentage Rate (APR) or equivalent annualized cost
- Total amount of capital provided to the merchant
- Total repayment amount including all fees and costs
- Payment frequency and estimated payment amounts
- Prepayment terms including any discounts for early repayment
- A clear statement that the transaction is not a loan
Cooling-Off Period
For the first time in any state, SB-1247 introduces a mandatory 3-business-day cooling-off period. During this window, merchants can cancel a signed advance without penalty. Funders must provide a written cancellation form at the time of signing.
Record-Keeping Requirements
Funders must maintain records of all disclosures provided for a minimum of five years and make them available to the California Department of Financial Protection and Innovation (DFPI) upon request.
Industry Reactions Are Mixed
The legislation has drawn sharply divided reactions from within the alternative finance community.
Nicole Patel, MCA attorney at Legion Legal Group, supports the measure: "This is a step in the right direction. Merchants deserve to understand what they're signing up for. The funders who operate with integrity have nothing to fear from disclosure requirements."
However, David Chen, CEO of Pacific Business Capital, warns of unintended consequences: "The compliance costs will disproportionately affect smaller funders. We estimate $150,000 to $300,000 in implementation costs for mid-size operations. Some will simply exit the California market."
The Small Business Finance Association (SBFA) released a statement calling the bill "well-intentioned but over-broad," arguing that the APR calculation methodology doesn't accurately reflect the cost structure of revenue-based financing products.
How SB-1247 Compares to Other State Laws
California's law is notably the first to include a cooling-off period and specific penalties for non-compliance.
Disclosure was never the threat. Inconsistent disclosure across nine states is.
What Funders Should Do Now
Industry compliance experts recommend that MCA providers operating in California begin preparation immediately:
- Audit current disclosure practices against SB-1247 requirements
- Engage compliance counsel familiar with California's DFPI regulatory framework
- Update CRM and origination systems to generate compliant disclosure forms
- Train broker networks on new requirements and timelines
- Budget for compliance costs including technology updates, legal review, and staff training
Frequently Asked Questions
Does SB-1247 apply to all MCA funders or only those based in California? The law applies to any MCA provider that funds merchants located in California, regardless of where the funder is headquartered.
What are the penalties for non-compliance? Violations carry fines of $10,000 to $50,000 per occurrence, with the DFPI authorized to pursue injunctive relief for repeat offenders.
Does the cooling-off period apply to renewals? Yes. The 3-business-day cooling-off period applies to all new MCA agreements, including renewals, refinances, and additional positions.
When does the law take effect? January 1, 2027, giving funders approximately 10 months to prepare from the date of signing.
This article was reviewed by compliance attorney Nicole Patel of Legion Legal Group and reflects information available as of February 24, 2026. Moneyline Editorial provides industry analysis and does not offer legal advice. Consult a qualified attorney for compliance guidance specific to your business.
