New York Commercial Financing Disclosure Rules: What Small Business Owners Need to Know

What Is the New York Commercial Financing Disclosure Law?

New York's Commercial Financing Disclosure Law (Part 601 of Title 23 NYCRR) took full effect in early 2023. It requires any funder offering commercial financing to a small business in New York to provide a clear, standardized disclosure document before the business accepts the offer. The goal is to let you compare the true cost of different financing options - not just the headline rate or factor rate.

The law applies to financing amounts up to $500,000. It covers many common products, including merchant cash advances, term loans, lines of credit, and invoice factoring. The disclosure must include the total amount of funds provided, the total repayment amount, the payment schedule, and a "total cost of capital" expressed as an annualized percentage rate (APR) - but note: for merchant cash advances, the APR-like metric is calculated differently than a traditional loan APR, so it's an estimate, not a loan APR.

This law is about transparency, not rate regulation. It does not set maximum rates or fees. It simply forces funders to put the key numbers in one place, in plain language, so you can see what you're agreeing to before you sign.

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Which Funding Types Are Covered?

Merchant Cash Advances (MCAs)

MCAs are a common form of financing where a funder buys a portion of your future credit card sales or receivables. Under the New York law, MCA providers must disclose the total amount advanced, the total amount to be paid back, the estimated annualized cost (using a formula set by the regulator), and the payment method (e.g., fixed daily ACH or percentage of sales).

Business Loans and Term Loans

Term loans with a fixed repayment schedule are covered. The disclosure will show the principal, interest rate, total interest, and APR. For variable-rate loans, the disclosure must include the current rate and how it may change.

Lines of Credit

For business lines of credit, the disclosure must include the credit limit, draw period, repayment terms, and the annualized cost of capital based on a typical draw amount.

Invoice Factoring and Receivables Financing

When you sell your invoices at a discount, the funder must disclose the advance rate, the discount fee, and the estimated annualized cost. This helps you compare factoring to other financing options.

What's Not Covered?

The law excludes financing over $500,000, securities-based financing, and certain types of equipment leases that are not structured as loans. Also, transactions with a financial institution that has a physical branch in New York may have different rules, but many still comply voluntarily.

Key Terms You Must Understand (With Illustrative Examples)

Total Amount of Funds Provided

This is the net amount you receive before any fees are deducted. For example, if you get a $10,000 advance and the funder deducts a $500 origination fee upfront, the amount provided is $9,500. The disclosure should show the gross amount and the net.

Total Repayment Amount

This is the sum of all payments you will make. If you receive $10,000 and pay back $12,000 over six months, the total repayment is $12,000. The difference - $2,000 - is the cost of capital.

Estimated Annualized Cost (APR-like Metric)

For MCAs, the law requires an estimate of the annualized percentage rate using a standardized formula. This is not the same as a loan APR because MCAs are not loans. It's a tool for comparison. For example, a $10,000 advance repaid as $12,000 over 6 months might show an estimated APR of around 40-50%, but actual cost depends on how quickly you repay. Always read the fine print.

Payment Schedule and Amount

The disclosure must show how often payments are due (daily, weekly, monthly) and the amount or method of calculation. For a fixed daily ACH MCA, you'll see a specific dollar amount per business day. For a percentage-of-sales MCA, the disclosure will explain the holdback percentage and how it adjusts.

Total Cost of Capital

This is simply the total repayment minus the amount provided. In the example above, $2,000. This number is straightforward and helps you compare offers without complex math.

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How to Read a Disclosure Statement

When you receive a disclosure from a funder, you should see a one- or two-page document with the following sections:

• Funder Information: Name, address, license number if applicable.
• Financing Type: Clearly states whether it's an MCA, loan, line of credit, etc.
• Amount Provided: The net amount you will receive.
• Total Repayment Amount: The total you will pay back.
• Estimated Annualized Cost: The APR-like figure.
• Payment Schedule: Frequency, amount, and duration.
• Prepayment Terms: If you pay off early, are there penalties or discounts? The law requires disclosure of any prepayment rules.
• Other Fees: Origination, underwriting, documentation, or late fees.

Compare these numbers across multiple offers. Look at the total cost of capital, not just the factor rate. A 1.2 factor rate on $10,000 means $12,000 total - but if one funder takes daily payments over 6 months and another takes monthly payments over 12 months, the daily payment option might feel more expensive but could actually cost less in total if you repay faster. The disclosure helps you see that.

How This Law Protects Your Business

Before the law, some funders would quote only a factor rate and a holdback percentage, leaving you to guess the total cost. You might agree to a $10,000 advance with a 1.3 factor rate and 10% daily holdback, not realizing that the effective APR could be over 100% if the advance is repaid quickly. Now, the disclosure forces the funder to show you the estimated annualized cost, so you can compare it to other options like a bank loan or a line of credit.

The law also requires that the disclosure be provided in a format that is easy to save and print. You can keep it for your records and use it if there's a dispute. If a funder fails to provide a compliant disclosure, you may have legal remedies under New York law. Always consult a business attorney if you believe a funder has violated the disclosure requirements.

Steps to Take When Comparing Offers

1. Get Multiple Disclosures

Ask every funder for their New York disclosure before you sign anything. If a funder hesitates, that's a red flag. Use a service like Find Merchant Funding to get matched with vetted funding partners who comply with the law.

2. Compare Total Cost of Capital

Look at the total repayment minus the amount provided. That's the dollar cost. Then look at the estimated annualized cost to understand the time value of money. A lower total cost is better, but also consider the payment frequency and term length.

3. Check the Payment Schedule

Can your business handle daily ACH payments? Would monthly payments be easier? The disclosure will show the exact payment amount and frequency. Make sure it aligns with your cash flow.

4. Understand Prepayment Options

Some funders charge a penalty if you pay off early; others reduce the total cost. The disclosure must state this. If you expect to repay quickly, look for a funder that offers a discount for early payoff.

5. Read the Fine Print

The disclosure is a summary. The actual contract may have additional terms like default rates, personal guarantees, or UCC liens. Ask for the full agreement and review it with your accountant or lawyer.

Common Mistakes to Avoid

• Focusing only on the factor rate: A factor rate of 1.2 might look low, but the annualized cost could be high if the term is short. Always look at the estimated APR-like metric.
• Ignoring payment frequency: Daily payments can drain your bank account quickly. Make sure you have enough daily revenue to cover the payments.
• Assuming the disclosure is the final contract: The disclosure is a pre-contract summary. The actual terms may differ slightly. Verify that the numbers match the contract.
• Not shopping around: The law gives you standardized information - use it to compare at least three offers. A free matching service can help you see multiple options quickly.
• Forgetting about personal guarantees: Many MCAs require a personal guarantee. That means your personal assets are at risk. The disclosure may not highlight that, so ask.

How Find Merchant Funding Helps You Navigate Compliance

Find Merchant Funding is a free service that connects small business owners with vetted, third-party funding partners. We are not a lender or broker of record - we simply match you with funders who are experienced in providing commercial financing under New York law. When you submit a request through our site, you may receive offers from multiple funders, each of whom should provide a compliant New York disclosure. You can compare them side by side and choose the one that fits your business best.

Because we work with funders who understand the disclosure rules, you can be confident that the offers you receive will include the standardized information you need. And because the service is free, there's no risk in seeing what's available. We never guarantee approval or specific terms - every funder makes its own credit decision based on your business's revenue, time in business, and other factors.

If you're a New York small business owner looking for working capital, equipment financing, or a merchant cash advance, start by getting matched with funders who play by the rules. The disclosure law is on your side - use it to make an informed decision.