Pennsylvania Commercial Financing Disclosure Rules: A Plain-Language Guide for Business Owners

What Are Commercial Financing Disclosure Rules?

Commercial financing disclosure rules are state laws that require lenders and funders to give small business owners standardized, upfront information about the cost and terms of a financing offer. Think of them as a truth-in-lending rule for business financing. Pennsylvania enacted its own version, the Commercial Financing Disclosure Law (Act 2020-78), which took effect in 2022. The law is designed to help you understand exactly what you’re agreeing to before you sign, so you can compare offers from different providers and avoid surprises.

Business Funding Nearby is a free matching service that connects you with vetted third-party funding partners. We are not a lender, bank, or funder, and we do not issue money or make credit decisions. Our role is to help you find potential partners who are transparent about their terms—and knowing about Pennsylvania’s disclosure rules is a key part of that process.

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What Types of Financing Are Covered?

Pennsylvania’s disclosure law covers a broad range of commercial financing, including:

• Term loans (fixed amount repaid over a set period)
• Merchant cash advances (MCAs) (advance repaid via a percentage of future sales)
• Business lines of credit (revolving access to funds)
• Invoice financing or factoring (advance against outstanding invoices)
• Equipment financing (loans secured by equipment)

The law generally applies to offers of $500,000 or less. It does not cover real estate financing, leases, or transactions made by a federal or state-chartered bank (though many non-bank funders are included). If you are a Pennsylvania business owner seeking financing through a non-bank provider, the disclosure rules likely apply to your offer.

What About Broker Arrangements?

If a broker or intermediary is involved, the disclosure must still be provided by the funder or the broker, depending on the arrangement. The key is that you, as the business owner, receive the disclosure before you accept the offer.

Key Elements of the Disclosure

When you receive a commercial financing offer from a covered provider, you should get a document that includes the following items:

• Total amount of financing (the gross amount you receive, before any fees deducted)
• Financing amount (the net cash you actually get, after deductions for fees like origination)
• Total cost of financing (the dollar amount you pay above the financing amount, i.e., the total of all fees, interest, and charges)
• Annual percentage rate (APR) (calculated using a standard formula, even for products that use factor rates or daily payment structures)
• Payment schedule (number of payments, amount of each payment, and frequency)
• Prepayment policies (whether you can prepay without penalty, and any rebate or penalty terms)
• Collateral or security interest (any assets you are pledging)

Each element is meant to give you a complete picture of the true cost of the financing. For example, with a merchant cash advance advertised with a factor rate of 1.3, the disclosure will show the APR, which can be dramatically higher than the factor rate suggests because the repayment term is short and payments are taken daily.

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How the Disclosure Helps You Compare Offers

Before the law, it was difficult to compare a term loan with a 15% APR to a merchant cash advance with a 1.2 factor rate. The APR calculation standardizes the comparison. For instance, consider a $10,000 advance with a factor rate of 1.4 and a 6-month term. The total repayment would be $14,000. Under the disclosure APR formula, that might result in an APR of 80% or more due to the short term and daily payment structure. A term loan of $10,000 at 15% APR with a 12-month term would have a much lower total cost. The disclosure lets you see that side by side.

This is not a guarantee that one offer is better for your business—cash flow, payment frequency, and flexibility also matter. But the disclosure gives you a fair starting point for comparison.

What the Disclosure Does NOT Tell You

While the Pennsylvania disclosure is a powerful tool, it has limits. It does not:

• Cap the interest rate or fees (the law only requires disclosure, not a maximum rate)
• Include all potential fees (late payment fees, returned check fees, or penalties for default are typically not disclosed upfront)
• Guarantee the offer is affordable (you still need to assess whether your cash flow can handle the payment schedule)
• Cover the funder’s customer service or reputation (always check reviews and references)
• Provide a right of rescission (unlike consumer loans, you generally cannot cancel a commercial financing agreement after signing)

You should use the disclosure as a starting point, not the final word. Ask the funder for a full list of all fees, and read the contract carefully.

How to Read and Use the Disclosure

Here is a practical checklist for reviewing a Pennsylvania commercial financing disclosure:

1. Confirm the financing amount. This is the net cash you receive. If it is less than you expected, find out why.
2. Look at the total cost of financing. This is the dollar figure you will pay above the amount you receive. It includes interest, origination fees, and any other charges.
3. Check the APR. The APR is the yearly cost of the financing expressed as a percentage. For short-term products, it can be high, but it helps you compare.
4. Review the payment schedule. Know the amount, frequency, and number of payments. Daily payments can strain cash flow, while monthly payments may be easier to manage.
5. Note prepayment policies. If you plan to pay off early, find out if there is a penalty or if you get a rebate of unearned fees.
6. Ask about fees not on the disclosure. Inquire about late fees, returned payment fees, and any other charges that could apply.

If you have multiple offers, line up the disclosures side by side. Compare the total cost and APR, but also consider the payment frequency and term length. A Business Funding Nearby representative can help you understand your options, but we do not provide legal or financial advice. Always consult your own advisor if you have questions.

Common Mistakes to Avoid

Small business owners often make these errors when evaluating commercial financing:

• Focusing only on the monthly payment. A low monthly payment may hide a longer term and higher total cost. Always check the total cost of financing.
• Ignoring the APR on merchant cash advances. Because MCAs use factor rates, some owners do not realize how high the APR can be. The disclosure will show it, so use it.
• Not accounting for payment frequency. Daily ACH payments can drain your bank account quickly. Make sure your cash flow can handle the frequency.
• Assuming the disclosure covers all fees. The disclosure is not a complete fee schedule. Ask about late fees and other charges.
• Signing without reading the full contract. The disclosure is a summary, not the contract. Read every term in the agreement before signing.
• Not shopping around. Pennsylvania law requires every covered funder to provide a disclosure, so you can and should compare offers from multiple sources.

How Business Funding Nearby Can Help

At Business Funding Nearby, we are a free matching service that connects small business owners with vetted, third-party funding partners. We are not a lender, and we do not issue money or make credit decisions. Our network includes partners who are familiar with Pennsylvania’s disclosure rules and are committed to transparency. When you use our service, you can receive offers from multiple funders, each providing a disclosure that you can compare. This helps you make an informed decision about which financing option is right for your business.

We encourage you to use the disclosure as a tool to evaluate offers and to ask questions about anything you don’t understand. And remember, you are under no obligation to accept any offer. Take your time, read the documents, and consult your legal or financial advisor if needed.

Pennsylvania’s commercial financing disclosure rules are designed to protect you by bringing clarity to an often confusing process. By understanding these rules and using them to your advantage, you can find financing that fits your business without hidden surprises.