California Governor Signs New Small Business Lending Law

The law strengthens oversight of commercial financing to combat high interest rates and predatory contract terms.

Updated on Oct. 15, 2026 in Financial Services

Bold flat-color editorial illustration of a heavy steel lock closing, representing regulatory oversight of business lending in California. — California Governor Gavin Newsom has signed Assembly Bill 2116, establishing new transparency and licensing mandates to protect small businesses from predatory lending. AI Illustration. Upload story photo >

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Should states impose stricter regulations on commercial lenders to protect small businesses from predatory practices?

Governor Gavin Newsom has signed Assembly Bill 2116, a measure designed to shield California small businesses from predatory commercial lending practices. The law mandates new transparency standards and regulatory oversight for merchant cash advances.

Why it matters

The legislation aims to curb excessive costs and restrictive contract clauses often found in non-bank financing. By increasing accountability, the state seeks to protect the interests of local entrepreneurs who previously faced predatory rates.

Merchant cash advances carry an average annual interest rate of 94%, though some providers have charged as much as 358%. California currently hosts approximately 4 million small businesses subject to these market conditions.

The players

Gavin Newsom

Gavin Newsom is the 40th Governor of California who is responsible for signing legislation into law.

The details

Assembly Bill 2116, also known as the Protect Small Businesses from Predatory Lending Act, bars lenders from obtaining power of attorney or confessions of judgment before a default. It expands the California Financing Law to require formal licensing for commercial financing providers and brokers.

The expanded oversight framework takes effect January 1, 2028.
Licensing requirements for providers and brokers take effect July 1, 2028.

Market Landscape

This legislation updates the California Financing Law to tighten control over the largely unregulated alternative commercial financing sector. It positions the state to close the gap between traditional banking oversight and the rapid growth of predatory merchant cash advance products.

Small business owners can expect increased transparency regarding interest rates and the removal of certain restrictive contract terms. These protections aim to prevent the financial instability caused by high-interest, short-term merchant cash advances.

The takeaway

Entrepreneurs should review their existing financing contracts to ensure they align with upcoming regulatory standards. Awareness of the high costs associated with merchant advances is essential for maintaining long-term business solvency.

What happens next

The state oversight framework will become fully operational on January 1, 2028, followed by the mandatory licensing phase for all commercial financing providers and brokers starting July 1, 2028.