New Jersey Disclosure Laws: What Your Funding Offer Must Tell You
In short: New Jersey's Commercial Financing Disclosure Law requires funders to give you a standardized disclosure form with the APR, total dollar cost, and repayment amount before you sign. This law applies to most business financing offers under $500,000, including merchant cash advances, term loans, and lines of credit. Always read the disclosure carefully and compare offers using the same terms.
Key takeaways
- New Jersey's law covers commercial financing under $500,000, including MCA, term loans, and lines of credit.
- The disclosure must show the APR, total repayment amount, and total dollar cost of the financing.
- You will receive this disclosure before you sign any contract, giving you a chance to compare offers.
- The law does not set a cap on rates, but it requires transparency so you can make an informed decision.
What Is the New Jersey Commercial Financing Disclosure Law?
New Jersey took a significant step for small-business transparency in 2021 when it passed the Commercial Financing Disclosure Law (N.J.S.A. 17:1-1 et seq.), which took full effect in 2022. This law requires funders to provide a clear, standardized disclosure form to any small business owner seeking financing of $500,000 or less. The goal is to let you compare offers side by side, much like the Truth in Lending Act does for consumer loans, but tailored for commercial products like merchant cash advances, term loans, and lines of credit.
If you are a business owner in New Jersey, this law means you cannot be left guessing about the true cost of funding. Before you sign any agreement, the funder must give you a document that spells out the APR, total repayment amount, and total dollar cost. This is not a suggestion; it is a requirement under state law. Violations can lead to penalties, but more importantly, the disclosure helps you avoid costly surprises.
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Which Types of Funding Are Covered?
The law applies broadly to commercial financing, but not every product is included. Here is a breakdown of what is covered and what is not.
Covered Financing Products
- Merchant cash advances (MCAs) - sales-based funding where you repay with a percentage of future card sales.
- Term loans - a lump sum repaid with fixed payments over a set period.
- Business lines of credit - revolving access to funds up to a limit.
- Invoice financing or factoring - advances against unpaid invoices.
- Equipment financing - loans used to purchase equipment.
These products are covered if the principal amount is $500,000 or less and the financing is not secured by real property (real estate).
Excluded Products
- Financing secured by real estate (mortgages, home equity lines).
- Leases of personal property under certain conditions.
- Financing provided by a bank or credit union that is already subject to federal consumer disclosure laws (though many bank products still fall under the state law).
- Franchise arrangements that meet specific criteria.
If you are unsure whether your offer falls under the law, ask the funder directly. Most reputable funders will provide a disclosure voluntarily even if technically exempt, because it builds trust.
What Must Be Disclosed?
The disclosure form is designed to be straightforward. It must include the following key pieces of information, each clearly labeled.
The APR (Annual Percentage Rate)
This is the cost of borrowing expressed as a yearly rate, taking into account the amount, term, and fees. For a merchant cash advance, the APR calculation can be complex because the repayment amount is fixed but the term varies with sales. The law requires funders to use a standardized method to compute the APR so you can compare across products.
Illustrative example: Suppose you receive a $50,000 term loan with a total repayment of $60,000 over 12 months. The APR would be roughly 20% - but this is an example only. Your actual APR will depend on the specific terms.
Total Repayment Amount
This is the total dollar amount you will repay assuming all payments are made on time. It includes principal, interest, fees, and any other charges.
Total Dollar Cost
This is the total amount of interest and fees you will pay over the life of the financing. It is the difference between the total repayment amount and the amount you receive.
Illustrative example: If you receive $10,000 and repay $12,000, the total dollar cost is $2,000.
Repayment Term and Frequency
The disclosure must state the length of the repayment period and how often payments are due (daily, weekly, monthly). For MCAs, it may also show the estimated payback period based on projected sales.
Other Required Information
- The amount of funds you will receive.
- The finance charge (if any).
- Any prepayment penalties or discounts.
- Whether the financing is open-end (like a line of credit) or closed-end.
- The identity of the funder.
All of this must be presented in a clear, readable format, not buried in fine print.
🔗 Related reading: Avoiding Predatory Funding Offers in New Jersey · Find Merchant Funding
When Must You Receive the Disclosure?
You must receive the disclosure before you sign the contract or pay any non-refundable fees. This gives you time to review the terms and compare offers from multiple funders. If a funder tries to pressure you into signing without showing you the disclosure, that is a red flag.
If you are working with a broker or a matching service like Business Funding Nearby, the funder is still responsible for providing the disclosure. The matching service can help you understand the document, but it is the funder who must issue it.
How to Use the Disclosure to Compare Offers
The disclosure is powerful because it standardizes the cost information. Here is how to use it effectively.
Focus on the APR
Because different products have different repayment structures, the APR is the best tool for comparing the true cost of financing. A lower APR generally means lower cost, but keep in mind that for short-term products, the APR can appear high even if the dollar cost is modest. For example, a $5,000 MCA repaid in 3 months with a $500 fee may have a high APR, but the total dollar cost is only $500.
Look at the Total Dollar Cost
This is the actual amount you will pay beyond what you receive. It is a straightforward number that tells you the real expense.
Check the Repayment Term
A longer term means lower payments but more total interest. A shorter term means higher payments but less total cost. Choose the term that fits your cash flow.
Compare Multiple Disclosures
Get at least two or three offers and lay the disclosures side by side. You will quickly see which funder offers the best combination of cost and terms.
Common Mistakes Small Business Owners Make
Even with a clear disclosure, pitfalls remain. Avoid these errors.
Not Reading the Disclosure at All
Some owners are so eager to get funds that they sign without reading. The disclosure is your only chance to see the full cost before committing. Read every line.
Focusing Only on the Payment Amount
Low weekly payments can hide a high total cost. Always check the total dollar cost and the APR.
Ignoring the APR for MCAs
Because MCAs are not loans, some funders try to downplay the APR. But the law requires it. Use it to compare, but also understand that the APR for an MCA may be significantly higher than a term loan because of the short term and high cost.
Assuming the Disclosure Is the Contract
The disclosure is a summary, not the full contract. Read the actual contract carefully, especially sections on default, prepayment, and automatic payments. Make sure the terms match the disclosure.
How Business Funding Nearby Can Help
Business Funding Nearby is a free matching service that connects small-business owners in New Jersey with vetted funding partners. We do not lend money or make credit decisions, but we help you find funders who are committed to transparency and compliance with disclosure laws. When you fill out a single online form, we match you with potential partners based on your business profile and needs. You will then receive multiple offers, each with the required disclosure, so you can compare and choose the best fit.
Our service is free because we are compensated by the funding partners when you accept an offer. We never charge you a fee, and we never pressure you to accept any offer. We simply help you navigate the market with confidence.
Conclusion
New Jersey's disclosure law is a powerful tool for small-business owners. It puts the key numbers in plain view and lets you compare offers on a level playing field. Always ask for the disclosure before you sign anything, and use it to compare APR, total dollar cost, and repayment terms. If an offer seems too good to be true, the disclosure will reveal the truth. And remember, Business Funding Nearby is here to help you find vetted partners who respect the law and your business. Start your free search today.