Regulation Is Catching Up to Business Funding. Owners Should Use It.

For years, small-business funding outside the banks worked with few rules. Owners compared offers by the daily payment and the speed of the wire, because those were the only numbers anyone showed them. That is ending. Over the past few weeks a state signed a licensing law, another state's registration deadline got closer, and a federal bankruptcy court ruled against one funder's contracts. Business owners should welcome all three, and use them.

A merchant cash advance is a purchase of future receivables, not a loan. A funder buys a share of your future sales and collects it as sales come in. Done right, it's a useful tool for a short-term cash gap. The new rules are aimed at the deals where it isn't done right.

What changed

California signed AB 2116 on September 30. Starting January 1, 2028, confessions of judgment taken before a default are banned and funders must consider whether a business can repay. Starting July 1, 2028, providers and brokers of financing of $500,000 or less to businesses with up to $16 million in gross receipts will need a state license. That covers advances, factoring, loans and leases. Brokers will also have to post the average and maximum APR of the deals they arranged the year before [1].

Texas requires sales-based financing providers and brokers to register with the state by December 31, 2026, and to give cost disclosures on offers under $1 million. Automatic recurring debits are banned unless the funder holds a perfected first-priority security interest in the business's receivables, and filing a confession of judgment is listed as an example of an unfair or deceptive practice [2].

In New York, a federal bankruptcy judge in In re Kossoff PLLC (July 27) treated 19 agreements between a law firm and one funder, $10.88 million advanced against $14.88 million owed, as loans under New York law. The court pointed to reconciliation that was left to the funder's discretion and daily debits that effectively fixed the term, and said a "this is not a loan" label didn't change that [7]. The ruling is about those specific contracts, not about advances in general, and it isn't an appeals-court precedent. But it shows what courts look at.

The best funders already work this way. The rules make it easier to tell who they are.

Why owners should welcome it

Georgia and Florida already require written cost disclosures on most deals of $500,000 or less and bar brokers from charging advance fees [3][4]. With California and Texas adding licensing and registration, owners in more states can expect three things: the total cost in writing before they sign, a real reconciliation process when sales drop, and fewer contracts with confessions of judgment. That makes offers easier to compare. It also makes it harder for a bad actor to hide behind the "not a loan" label.

Owners are also showing they want a way out of expensive capital. One Wells Fargo-backed fund said 61% of the deals it funded were used to refinance advances [8]. A market where costs are disclosed upfront and contracts are fair is one where it's easier to move from fast money to cheaper money.

How to use the new rules today

Regulation can feel like paperwork, but this round protects owners. It puts the cost on paper, takes the worst contract terms off the table, and makes the honest players easier to find. Use it: ask for the numbers, read the terms, and work with people who are glad to show you both.

This is an opinion editorial, not financial, investment, legal or tax advice, and not an offer of credit or financing. Predictions are the author’s views. Blue Ledger Capital arranges financing with third-party lenders and funders, who make all credit decisions and set all rates and terms. On some loans, Blue Ledger Capital may be named lender of record at closing under a table-funding arrangement; those loans are funded at closing by a third-party lender. A merchant cash advance is a purchase of future receivables, not a loan. Blue Ledger Capital, 5080 Riverview Rd, Sandy Springs, GA 30327, (646) 416-1011.