What Federal and State Small Business Lending Laws Exist?
Navigating small business lending laws can feel complicated, especially as federal and state regulations continue to evolve. While the Truth in Lending Act (TILA) is often top of mind, it actually plays a very limited role in business financing.
Instead, small business borrowers are more affected by laws like the Equal Credit Opportunity Act, new federal data collection rules, and a growing wave of state-level disclosure requirements.
Below, we break down what TILA does and doesn’t cover, which laws do apply to business lending, and what recent regulatory changes mean for small business borrowers.
Does the Federal Truth in Lending Act Apply to Small Business Loans?
No, the federal Truth in Lending Act does not apply to small business loans.
The Truth in Lending Act protects borrowers from unfair lending practices. Under TILA, lenders must:
Provide clear, standardized disclosures about loan terms — including fees, payment schedules, and APRs.
Give borrowers the right of rescission, which means they get three days to reconsider and back out of the loan.
Avoid unfair billing practices.
However, these rules don’t apply when a credit transaction is for a “business, commercial or agricultural purpose.”
There was an attempt to change this in 2021 with House Bill 6054. The purpose of the bill was to apply TILA to small business financing. While it was introduced and referred to the House Committee on Financial Services, it didn’t make progress beyond that.
Does TILA Apply to Business Credit Cards?
Even though TILA doesn’t apply to business loans, it does include two provisions that pertain to business credit cards, according to HelpWithMyBank.gov:
No unsolicited business credit cards: This means a business credit card can only be issued when someone has explicitly requested it.
Limited liability for unauthorized charges: This means if a business credit card is lost or stolen, the cardholder can’t be held responsible for more than $50 of the unauthorized charges.
Are There Any Federal Small Business Lending Laws?
Even though TILA doesn’t apply to small businesses, there are other federal regulations that do. Two of the primary ones are the Equal Credit Opportunity Act and the Small Business Lending Rule.
Equal Credit Opportunity Act (ECOA)
The Equal Credit Opportunity Act and its Regulation B prohibits credit applicants from being discriminated against based on race, color, religion, national origin, sex, marital status, or age. This law applies to both individual borrowers and businesses.
The Consumer Financial Protection Bureau (CFPB) supervises and enforces the law. The CFPB also has rulemaking authority, which it has used to amend Regulation B and enact the small business lending rule.
Small Business Lending Rule
Technically, the small business lending rule isn’t a separate law. It’s a final rule by CFPB that amends Regulation B to implement the Dodd-Frank Act’s ECOA changes.
When the Dodd-Frank Wall Street Reform and Consumer Protection Act was signed in 2010, it included Section 1071, which amended ECOA by adding small business lending data collection and reporting requirements. Under Section 1071, financial institutions need to gather and report lending and demographic information for women-owned, minority-owned, and small businesses.
The information they must gather and report about loan applicants includes:
The race, sex, and ethnicity of the principal owners of the business
The purpose of the loan
The action taken by the financial institution (e.g., if the loan was approved or denied)
The purpose is to help enforce fair lending laws and better identify business and community development opportunities.
The CFPB’s small business lending rule was released in 2023. It provides the regulatory framework for how financial institutions can comply with the reporting requirements. However, it’s received some pushback and legal challenges. This has led to compliance date extensions and even proposed rule changes in November 2025.
Are There Any State Small Business Lending Disclosure Laws?
Yes, multiple states have created small business truth in lending laws. California, which passed its Commercial Financing Disclosure Law in 2018, was the first state. New York was the second, with its Small Business Truth in Lending Law in 2020.
Other states that have followed the lead include:
Utah
Virginia
Florida
Georgia
Kansas
Are There Laws Related to Merchant Cash Advances (MCAs)?
Merchant cash advances are known for being unregulated in many jurisdictions. They aren’t considered business loans. Rather, they involve the purchase of future sales or receivables. Because of this, they are often able to skirt state usury laws, which set interest rate limits. It’s one of the reasons MCA debt is so prevalent.
However, some states and organizations have started taking action when it comes to these notorious lending options. For example, the wording in the California Commercial Financing Disclosure Law ensures the disclosure requirements apply to MCAs. Texas also recently added a new law that affects MCAs. It includes provisions for registration, disclosures, and limits on preauthorized electronic debits.
MCAs can also be held responsible for abusive lending practices under some existing state laws. In 2023, the New Jersey Attorney General reached a settlement with an MCA provider for violations against the state’s Consumer Fraud Act. A case was also brought against a group of MCA providers by the New York Attorney General for disguising illegal high-interest loans as MCAs.
However, whether existing lending laws apply to MCAs is a state-by-state issue. While New Jersey and New York courts have had success applying their laws to MCAs that have crossed the line, a court in Florida ruled that an MCA was not a “disguised loan.”
It’s also important to note a new change to the Small Business Administration’s loan requirements. In June 2025, SOP 50 10 was changed to read, “Merchant cash advances and factoring agreements are not eligible for refinancing.”
Previously, you could use funds from an SBA loan to refinance an MCA, but that practice is no longer allowed.
Work With a Reputable Finance Provider
Small business lending laws are a mixed bag. Federally, there are protections against discrimination, but whether lenders and financial services providers are subject to disclosure requirements or usury laws varies from state to state. It’s important to work with a bank, credit union, or alternative nonbank lender that offers clear lending products and repayment terms.
With Backd, you can get flexible funding to meet your business needs with two lending options:
Business Term Loan*: Receive up to $1.5 million with term lengths up to 24 months and weekly or monthly repayments.
Business Line of Credit: Draw funds of up to $1 million when you need them, and repay weekly over six or 12 months.
Both funding options come with straightforward eligibility requirements:
$100,000 in monthly revenue
A 650+ credit score
Established business credit
Based in the U.S. with a brick-and-mortar address
Been in business for one year for a Business Term Loan and two years for a Business Line of Credit
Apply now** and receive a funding offer within as little as 6 hours.***
*Loans are decisioned and funded by one of Backd's lender partner banks.
**Your application, including the amount, cost, and approval, is subject to review and is not guaranteed. Terms and conditions subject to change without prior disclosure or notice.
***Decisions and funding may take additional time and not be same-day. Additional information may be required. Time to receive funds varies based upon your financial institution's receiving schedule and operating hours.
