A 23-year-old factoring company just became the first to clear California's licensing bar for commercial lenders. Here's what that means for every alternative lender doing business in the state.

On February 23, 2026, the California Department of Financial Protection and Innovation (DFPI) approved 1st Commercial Credit, LLC for a California Finance Lender (CFL) license authorizing commercial (non-consumer) financing statewide.¹

The Austin, Texas-based factoring company, which has funded over $5 billion to more than 3,800 businesses since 2002,² is now the first documented recipient of this license type for commercial financing under the California Financing Law.

That last detail is the one that matters. The California Financing Law has been in effect for years. Its commercial disclosure regulations took effect in December 2022.³ Yet until now, no commercial finance company had publicly obtained a CFL license. The DFPI itself acknowledged that "due to California's strict licensing standards, disclosure requirements, and ongoing compliance obligations, many factoring and commercial finance companies have elected not to pursue licensure."¹

Translation: the licensing requirement existed. The industry ignored it. That changes now.

Key facts:

_{Sources
1 PR Newswire/Morningstar | California DFPI Grants 1st Commercial Credit Commercial Lender License
2 1st Commercial Credit | About (Company Background)
3 Paul Hastings | The California Financing Law: Commercial and Consumer Lenders Beware
4 Onyx IQ | Commercial Financing Disclosure Laws (By State)
5 DFPI | California Finance Lenders License FAQ
6 Manatt | California Commercial Financing Registration Requirements
7 DFPI | Requirements After a Finance Lenders License Has Been Issued
8 SuretyBonds.com | California Finance Lender Broker License Guide
9 IFA Commercial Factor Magazine | Regulation of Commercial Finance Companies is Here and Intensifying
10 Alston & Bird | Commercial Financing Disclosure Requirements and Exemptions (Jan 2026)
11 Mayer Brown | California Moving to License All Commercial Loan Brokers? (SB 869)
12 ELFA | Lender License and Enhanced Financial Disclosure
13 Capco | New Commercial Finance Disclosure Laws
14 DFPI | California Financing Law Overview
15 DFPI | Monthly Bulletin, January 2026}

California's commercial financing disclosure law (SB 1235) requires providers to disclose APR-equivalent rates, total cost of financing, and other terms on commercial deals. That law has been contested: the Small Business Finance Association (SBFA) filed suit in December 2022, claiming California's custom formulas lead to inaccurate APR calculations. A federal judge ruled in favor of DFPI in December 2023, and the SBFA appealed to the Ninth Circuit.⁴

The CFL license is a separate, additional requirement. Disclosure is about transparency on deals you make. Licensing is about permission to make deals at all. Many alternative lenders focused on the disclosure fight while the licensing requirement sat quietly in the background. 1st Commercial Credit's approval puts that requirement on the front page.

The CFL license requirement covers "commercial financing," which the law defines broadly: closed-end and open-end loans, factoring transactions, accounts receivable purchases, and sales-based financing.^{3 6} If you are a non-bank entity making commercial loans, purchasing receivables, or providing merchant cash advances in California, you fall under this framework.

The exemptions are narrow. You are exempt if you make only one commercial loan per 12-month period in California. You may also qualify if you make fewer than five California loans in 12 months and those loans are "incidental" to your primary business.⁵ For any alternative lender with a regular California pipeline, these exemptions will not apply.

The International Factoring Association put it plainly: California is the first state to require a finance lenders license for all non-bank lenders or factors, and non-recourse factors are expected to have a license regardless of rate charged or whether the transaction holds up as a true sale.⁹

The financial bar is lower than many expect. Minimum net worth requirement is $25,000 for non-residential lenders.⁵ The surety bond starts at $25,000 and escalates with volume: $50,000 for $1M to $50M in aggregate loans, $100,000 for $50M to $500M, and $200,000 for loans exceeding $500M.⁸

The real cost is operational. You must file through the Nationwide Multistate Licensing System (NMLS), provide detailed financial statements, submit a comprehensive business plan, and present all disclosure documents, financing contracts, and application flows to DFPI for review.^{5 6} You need a certificate of authority or good standing from the California Secretary of State dated within 60 days of your application.⁸ Annual reports are due by March 15 every year, regardless of whether you originated any California deals that year.⁷

1st Commercial Credit had to establish a registered California foreign entity and implement enhanced internal compliance procedures as part of their approval process.¹ For a company that has been in business for 23 years with $5 billion funded, the documentation burden was still substantial enough to be worth noting in their own announcement.

This is where the calculation gets uncomfortable. The DFPI has enforcement authority, but enforcement against unlicensed commercial lenders has been sparse. That is likely to change now that a clear compliance path has been demonstrated.

The CFPB made a preliminary determination that California, New York, Utah, and Virginia commercial financing disclosure laws are not preempted by the federal Truth in Lending Act.¹³ That closed the industry's best legal argument: that federal law overrides state licensing requirements. The courts sided with regulators when the SBFA challenged the disclosure rules.⁴ The legal ground under unlicensed operation is eroding from both directions.

The practical risk is competitive. Licensed operators like 1st Commercial Credit can point to their DFPI-approved status as a trust signal when competing for deals. As more lenders obtain licenses, the compliance gap between licensed and unlicensed operators becomes a sales liability.

California is leading, but it is not alone. Eleven states now have commercial financing disclosure laws on the books: California, New York, Utah, Virginia, Georgia, Florida, Connecticut, Kansas, Missouri, Louisiana, and Texas.^{4 10}

Texas passed HB 700 (signed June 20, 2025) requiring sales-based financing disclosure and registration with the Texas Office of Consumer Credit Commissioner, effective December 31, 2026.⁴ Utah already requires covered entities to register with the state's Department of Financial Institutions.¹³ Louisiana's law, effective August 1, 2025, is notable for having no exemptions for any entity or transaction type.⁴

Maryland, Missouri, New Jersey, and North Carolina have considered similar bills.¹³ The trajectory is clear: what California did with licensing, other states will replicate in their own frameworks.

The Equipment Leasing and Finance Association (ELFA), representing the $827 billion U.S. equipment finance sector, has been actively lobbying for true-lease exemptions in each state that passes disclosure legislation.¹² Their advocacy has succeeded in carving out exemptions for true equipment leases. But anything structured as a loan, financing arrangement, or accounts receivable purchase remains covered.

California is not stopping at lender licensing. Senate Bill 869 would create a new licensing requirement for anyone providing "commercial brokerage" services for loans of $5,000 or more.¹¹ Currently, California does not require a license to broker non-real-estate-secured commercial loans to banks or depository institutions.

SB 869 would also impose a fiduciary duty on commercial brokers, requiring "utmost honesty, absolute candor, and unselfishness toward the borrower," with an obligation to place the borrower's economic interest ahead of their own.¹¹ For MCA brokers, factoring brokers, and ISOs operating in California, this represents a significant expansion of the regulatory net.

The combined effect of lender licensing plus broker licensing creates a complete compliance framework covering the entire origination chain.

Step 1: Audit your California exposure. Count your California-originated deals from the past 12 months. If you made more than one commercial loan or financing transaction, or more than four that were "incidental" to your main business, you likely need a CFL license.

Step 2: Check your entity status. The CFL application requires a certificate of authority or good standing from the California Secretary of State, dated within 60 days of application.⁸ If your company is not registered as a California foreign entity, that is a prerequisite before you can even apply.

Step 3: Budget the hard costs. $25,000 surety bond (minimum), $25,000 net worth requirement, NMLS filing fees, legal review of your disclosure documents and contracts. The soft costs (internal compliance procedures, annual reporting, ongoing oversight) are harder to estimate but real.

Step 4: Talk to your compliance counsel. The exemptions are narrow, the SBFA legal challenge failed, and CFPB has confirmed that federal law does not preempt state commercial financing rules. The window for operating in a gray area is closing.

Step 5: Watch Texas. If you also originate in Texas, the December 31, 2026 registration deadline is approaching. 1st Commercial Credit, headquartered in Austin, just proved you can navigate both markets. Their playbook is now the industry benchmark.

Not "Active."

Not "In Good Standing."

Texas doesn't use those terms.

Texas uses "Registration"

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