New York Disclosure Laws: What Your Funding Offer Must Tell You

What Is New York's Commercial Financing Disclosure Law?

New York's Commercial Financing Disclosure Law (CFDL) took effect in 2023 to bring transparency to business funding. It requires funders-including merchant cash advance companies, invoice factors, and online lenders-to provide a standardized disclosure form to any small business seeking financing of $2.5 million or less. The disclosure must include the total cost of the financing, an annualized rate, the total repayment amount, and the payment schedule. This law is designed to help you, the business owner, compare offers side by side without hidden fees or confusing terms.

Importantly, the disclosure is not a contract-it's a pre-contract summary. You must receive it before you sign any agreement. If a funder fails to provide it, you may have legal grounds to challenge the agreement. The law covers most types of commercial financing, including merchant cash advances, invoice factoring, lines of credit, term loans, and equipment financing.

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Why Does This Law Matter for Your Business?

Before the CFDL, many business owners received funding offers that were difficult to compare. A merchant cash advance might quote a factor rate of 1.3, while a term loan might quote an APR of 25%. Without a common metric, you couldn't easily tell which was more expensive. The CFDL fixes that by requiring a standardized annualized rate that reflects the true cost of the financing over a year, expressed as a percentage. This lets you compare apples to apples.

For example, consider a $10,000 merchant cash advance with a factor rate of 1.3 and a term of 6 months. The total repayment would be $13,000. The annualized rate on the disclosure might be 60% or more, depending on the frequency of payments. That same $10,000 term loan with a 25% APR and 12-month term would have a much lower annualized rate. Without the disclosure, you might think the MCA is cheaper because the factor rate looks small. The law protects you from that mistake.

What Types of Funding Are Covered?

The law applies broadly to any commercial financing transaction where the recipient is a business and the amount is $2.5 million or less. Specific products include:

• Merchant cash advances - where you sell a portion of future receivables for a lump sum.
• Invoice factoring - where you sell unpaid invoices at a discount.
• Business lines of credit - revolving credit with draw and repayment terms.
• Term loans - lump sum repaid with interest over a fixed period.
• Equipment financing - loans or leases for equipment purchase.
• Revenue-based financing - repayments tied to a percentage of daily sales.

Some transactions are exempt, such as those secured by real estate, leases of real property, or financing from a bank with a physical branch in New York. But most alternative funding sources are covered.

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What Must the Disclosure Include?

The disclosure form must contain specific information in a clear, easy-to-read format. Here's what you should see:

Total Cost of Financing

This is the dollar amount you will pay in fees, interest, and other charges over the life of the financing. For a merchant cash advance, this is the difference between the advance amount and the total repayment. For a term loan, it's the total interest plus fees.

Annualized Rate

This is a percentage that represents the cost of financing on an annual basis. It is not the same as APR because it does not include compounding or certain fees, but it serves as a standardized comparison tool. The law requires the funder to calculate this rate using a formula set by the New York Department of Financial Services.

Total Repayment Amount

The exact dollar amount you will pay back, including all principal, fees, and charges. This is the number you'll see on your bank statements.

Payment Schedule

How often you pay (daily, weekly, monthly), the amount of each payment, and the total number of payments. For merchant cash advances, this might be a fixed daily ACH amount. For lines of credit, it might be a minimum monthly payment.

Other Required Details

The disclosure must also include the funder's name, your business name, the date, and a statement that the disclosure is not a contract. If the financing includes a prepayment penalty or a balloon payment, that must be disclosed as well.

How to Read and Use the Disclosure

When you receive a disclosure, take time to review it carefully. Compare the annualized rate and total cost across multiple offers. A lower annualized rate generally means cheaper financing, but also consider the repayment term and payment frequency. A short-term product with high daily payments might strain your cash flow even if the rate looks low.

Look for any fees that are not included in the annualized rate. The law requires all fees to be listed, but some funders may try to bury them in fine print. If something seems missing, ask the funder for clarification. You have the right to a complete disclosure before signing.

Also, note that the disclosure is not a commitment. You can walk away after receiving it. Use it to negotiate better terms or to ask for a revised disclosure with different assumptions (e.g., a longer term).

Common Mistakes Business Owners Make

• Ignoring the annualized rate - Focusing only on the factor rate or monthly payment can lead to overpaying. Always look at the annualized percentage.
• Not comparing multiple offers - One disclosure is useful, but comparing two or three gives you leverage and a better sense of market rates.
• Assuming the disclosure is the final contract - The disclosure is a summary. The actual contract may have additional terms. Read both.
• Overlooking prepayment penalties - Some funders charge a fee if you pay off early. The disclosure must mention this, but you need to check.
• Rushing to sign - Funders may pressure you to sign quickly. The law gives you the right to review the disclosure before signing. Take your time.

How a Free Matching Service Helps You Comply and Compare

Navigating New York's disclosure requirements can be overwhelming, especially when you're busy running a business. A free service like Business Funding Nearby can simplify the process. We match you with vetted funding partners who are familiar with New York law and provide compliant disclosures. Instead of contacting multiple funders yourself, you fill out one simple form, and we connect you with partners who fit your needs. You then receive their disclosures and can compare them side by side. Our service is free-you only pay if you accept an offer. We never charge you a fee, and we are not a lender. We're a matching service that helps you find transparent, compliant funding options.

What If the Funder Doesn't Provide a Disclosure?

If a funder fails to give you a disclosure before you sign, or if the disclosure is incomplete or misleading, you may have legal options. The New York Department of Financial Services can investigate complaints. You may also be able to void the contract or seek damages. Keep a copy of all disclosures and communications. If you suspect a violation, consult with a business attorney who understands the CFDL.

Most reputable funders comply with the law because they want to build trust and avoid penalties. But if you encounter a funder who doesn't, consider that a red flag. Walk away and look for a partner who respects transparency.

Final Thoughts

New York's disclosure law is a powerful tool for small business owners. It forces funders to be upfront about costs and gives you the information you need to make smart decisions. Use it. Compare offers. Ask questions. And remember, you don't have to navigate this alone. Services like Business Funding Nearby can help you find vetted partners who follow the rules. The goal is to get funding that works for your business, not against it.