The New York FAIR Act — formally Senate Bill 5470-A — took effect August 1, 2023. It requires anyone offering commercial financing under $2.5 million to a New York business to provide a standardized disclosure document at the time of the offer. MCAs are explicitly covered. Here's what it actually requires and what changed for merchants.
What the FAIR Act requires
Funders must provide six numbers, in writing, before the merchant signs:
- Total amount of the financing (the advance)
- Disbursement amount (what actually hits the merchant's account after fees)
- Total repayment amount (advance × factor rate)
- Total cost of capital (total repayment minus the disbursement)
- Estimated APR calculated using a method specified in the regulation
- Term and payment schedule — payment amount, frequency, and estimated number of payments
The disclosure must be presented in a standardized format. Merchants sign an acknowledgment that they received it before any financing agreement is executed.
Who's covered
- Commercial financing under $2.5M to a NY business or for use in NY
- MCAs explicitly included — the regulation calls them out by name as "sales-based financing"
- Term loans, lines of credit, factoring, lease financing — also covered, each with its own disclosure rules
- Banks and credit unions exempt — they have their own federal disclosure regimes
- Real estate financing exempt — different regulatory bucket
What changed in practice for MCA merchants
Before August 2023, NY merchants got a contract with the advance, factor rate, and daily payment, and that was it. APR-equivalent calculation wasn't required. After the FAIR Act, every offer comes with the standardized disclosure form attached.
The APR-equivalent number on FAIR Act disclosures is often eye-watering relative to bank loan APR — typical MCA APR-equivalents land 50%-200% depending on factor rate and term length. This isn't because the FAIR Act made MCAs more expensive — it just made the underlying cost more visible. The factor rate hasn't changed; the math reveals what was always true.
What it doesn't do
- Doesn't make MCAs subject to usury caps. NY usury law still doesn't apply to commercial financing structured as receivables purchase.
- Doesn't ban anything. No cap on factor rates. No restriction on stacking. No limit on advance size beyond the $2.5M coverage threshold.
- Doesn't reclassify MCAs as loans. Disclosure requirements are layered on top of the existing MCA structure, not replacing it.
- Doesn't apply to advances above $2.5M. Larger commercial deals fall outside the regime entirely.
Penalties for funders who don't comply
The NY Department of Financial Services enforces. Penalties scale with the violation: civil penalties up to $2,000 per violation, with willful or knowing violations climbing higher. The DFS can also order disgorgement and require corrective disclosures. Several funders have been fined since enforcement began in late 2023.
What this means if you're a NY merchant
You'll see a FAIR Act disclosure form attached to any commercial financing offer under $2.5M. Read it. The numbers on the form are the real cost of capital. If the funder doesn't provide it, that's a red flag — they're either non-compliant or operating outside NY. Walk away or ask for the disclosure in writing before signing anything.
Sources & References
- Bank denial and small business credit access figures cited in this piece are derived from the Federal Reserve Small Business Credit Survey. Approval rates for small business credit applications at large banks have ranged from approximately 13%-31% across recent survey years, depending on bank category and reporting period.
- Small business finance landscape and lending program data: SBA Office of Advocacy.
- Merchant cash advance industry standards and disclosure practices: Small Business Finance Association (SBFA).
- Commercial financing disclosure regulations referenced (NY FAIR Act, CA SB 1235/666/362, VA, UT) are summarized from the published statutes; consult counsel for specific compliance application.