California requires licenses for commercial financing firms starting 2028
California’s AB 2116 mandates licenses for commercial financing providers starting July 2028.
Why it matters: Legal professionals advising lenders and fintechs in California must update compliance programs to meet new state licensing and consumer protection requirements for commercial financing.
- AB 2116 was signed by Governor Newsom on September 30, 2026, establishing the California Financing Law (CFL) framework.
- Licensing starts July 1, 2028; agreements made after January 1, 2028 without a license or complete application are unenforceable.
- The law covers commercial financing up to $500,000 and prohibits unfair or deceptive practices, including contract clauses limiting disclosure.
- Exemptions apply to banks, federally regulated farm credit lenders, and certain transaction types; providers must assess ability to repay and brokers must post average and max APRs online.
California’s Assembly Bill 2116, signed by Governor Gavin Newsom on September 30, 2026, creates the state's first licensing and regulatory regime for commercial financing providers serving small businesses. It covers financing types such as purchases of accounts receivable (factoring), asset-based loans, commercial loans, open-end credit, and leases not meant for personal use, focusing on offers up to $500,000.
Starting January 1, 2028, any commercial financing agreement entered into without a licensed provider or a fully submitted license application will be unenforceable in California. The licensing requirement itself begins on July 1, 2028, under the California Financing Law (CFL). The law exempts depository institutions such as banks, federally regulated farm credit lenders, and some types of transactions.
Under AB 2116, providers and brokers cannot require confessions of judgment or powers of attorney before a default occurs. The law bans unfair, deceptive, or abusive acts and forbids contract terms that prevent borrowers from sharing financing details. Providers also must perform ability-to-repay evaluations starting January 1, 2028. Brokers must publish average and maximum APRs for their transactions on their websites to promote transparency.
Details on the licensing application process and enforcement mechanisms remain limited publicly, creating uncertainty for providers and legal advisors. According to Hinshaw & Culbertson LLP’s analysis, compliance teams should thoroughly review existing contracts and prepare for new regulatory oversight.
John A. Kimble, chair of the Financial Services Litigation Group at Hinshaw, highlighted the law’s broad scope and encouraged stakeholders to monitor developments closely as additional guidance emerges.
By the numbers:
- September 30, 2026 — Date AB 2116 was signed into law
- January 1, 2028 — Agreements with unlicensed providers become unenforceable
- July 1, 2028 — Mandatory license requirement effective date
- $500,000 — Maximum amount covered by the law for commercial financing offers
Yes, but: While the law establishes clear new licensing and consumer protection mandates, the state has yet to publish detailed regulations or licensing procedures, creating implementation uncertainty.
What's next: The California Department of Financial Protection and Innovation (DFPI) is expected to issue implementing regulations and licensing guidance ahead of the July 2028 deadline.