Michigan Commercial Financing Disclosure Rules Explained

What Is the Michigan Commercial Financing Disclosure Law?

In 2021, Michigan enacted the Commercial Financing Disclosure Law (CFDL) to bring transparency to business lending. Before this law, small business owners often received loan offers with confusing terms-like factor rates, holdback percentages, and non-standardized fees-making it nearly impossible to compare one offer to another. The CFDL requires funders to provide a clear, standardized disclosure form that includes the annual percentage rate (APR) or a comparable measure, the total amount of financing, the total repayment amount, and the payment schedule. This gives you the same kind of clear information that consumers get with personal loans.

The law applies to any commercial financing transaction of $500,000 or less, including term loans, lines of credit, merchant cash advances, and equipment financing. It covers funders who do business in Michigan, whether they are banks, online lenders, or alternative finance companies. For small business owners in Detroit, Grand Rapids, Lansing, or anywhere else in the state, this law means you can now see the true cost of financing before you commit.

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Why Does This Law Matter for Your Business?

If you're a small business owner in Michigan, you've probably seen offers that look cheap at first glance-low monthly payments, fast approval, and "no hidden fees." But without a standardized disclosure, the actual cost could be buried in fine print. The CFDL helps you avoid surprises. For example, a merchant cash advance might quote a factor rate of 1.3 on a $20,000 advance. That means you repay $26,000. But what is the APR? It could be 50% or more, depending on the repayment term. The disclosure form will show you that APR so you can compare it to a traditional bank loan with a 10% APR.

This law also creates accountability. Funders that fail to provide the required disclosure could face penalties or legal action. As a business owner, you have the right to ask for the disclosure and to walk away if the terms are not clear. The law does not set a maximum interest rate, so you still need to shop around, but at least you can compare apples to apples.

What Types of Financing Are Covered?

Michigan's CFDL covers a broad range of commercial financing products. Here are the main types:

• Term loans - Lump-sum loans repaid with interest over a fixed period.
• Business lines of credit - Revolving credit that you can draw from and repay as needed.
• Merchant cash advances (MCAs) - Advances repaid through a percentage of daily credit card sales or bank deposits.
• Equipment financing - Loans or leases used to purchase machinery, vehicles, or other equipment.
• Invoice factoring or financing - Selling your outstanding invoices at a discount for immediate cash.

The law generally applies to transactions of $500,000 or less. Some types of financing are exempt, such as leases that are not considered financing, or transactions with certain financial institutions that are already regulated. But the majority of small business funding falls under the law's umbrella.

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What Information Must Be Disclosed?

Funders are required to provide a disclosure form that includes the following key items:

• Total amount of financing - The principal amount you are receiving.
• Annual percentage rate (APR) - The cost of financing expressed as a yearly rate, including interest and fees. For MCAs, the funder may disclose a "total cost of financing" expressed as a percentage or a dollar amount.
• Total repayment amount - The sum of all payments you will make, including principal, interest, and fees.
• Payment schedule - How often you pay (daily, weekly, monthly) and the amount of each payment.
• Other fees - Any origination fees, closing costs, prepayment penalties, or late fees.

For example, if a funder offers you $50,000 at a 1.2 factor rate with a 12-month term, the disclosure would show: total amount financed $50,000, total repayment $60,000, APR approximately 40% (for illustrative purposes only-actual APRs vary). The payment schedule might be $1,154 per week (if weekly payments) or $5,000 per month. This allows you to see the true cost.

How to Read and Compare Disclosure Statements

When you receive a disclosure from a funder, focus on the APR or equivalent measure. This is the single most useful number for comparing offers. A lower APR means lower cost. But be careful: some funders may use a different metric, like a "total cost of financing" percentage that is not exactly the same as APR. Michigan law requires that the disclosure be understandable, but it's still a good idea to ask questions if anything is unclear.

Also, look at the total repayment amount. If one offer has a total repayment of $60,000 and another has $55,000, the second is cheaper, even if the APR is similar. The payment schedule matters too: daily or weekly payments can strain your cash flow more than monthly payments. Compare the payment frequency and amount to what your business can realistically handle.

Finally, check for any fees that might not be included in the APR. For example, some funders charge an origination fee that is deducted from the loan amount, which effectively raises the cost. The disclosure should list all fees, but if you see a fee that seems excessive, ask for clarification.

Practical Tips for Michigan Business Owners

Here are some actionable steps you can take when seeking commercial financing:

• Always ask for the disclosure before signing anything. If a funder hesitates or says they don't have one, walk away. A reputable funder will comply with Michigan law.
• Compare at least two offers. Use the disclosure forms to compare APRs, total repayment, and payment terms. This is the best way to find the lowest cost.
• Understand the difference between APR and factor rate. Factor rates are common in MCAs, but they don't include the effect of time. The APR does. For example, a 1.3 factor rate on a 6-month advance might have a higher APR than the same factor rate on a 12-month advance.
• Check the funder's reputation. Look for reviews on the Better Business Bureau or ask other business owners. The disclosure law doesn't guarantee a good lender, but it helps you avoid predatory ones.
• Don't assume the disclosure is the final offer. Some funders may adjust terms after a credit check. Make sure you receive the final disclosure before accepting.

Common Mistakes to Avoid

Even with the disclosure law, small business owners can still make costly mistakes. Here are the most common pitfalls:

• Focusing only on the monthly payment. A low monthly payment could mean a long term, which increases total interest. Always look at the total repayment amount.
• Skipping the fine print. The disclosure form is standardized, but there may be additional terms in the contract that are not on the disclosure, such as prepayment penalties or personal guarantees. Read the entire contract.
• Assuming all funders comply. The law is relatively new, and some funders may not be fully compliant. If you suspect a violation, you can report it to the Michigan Department of Insurance and Financial Services (DIFS) or consult an attorney.
• Not considering the impact on cash flow. A high APR might be acceptable if the repayment schedule matches your revenue cycle. But a daily payment that drains your bank account every day could put you in a bind. Make sure the payment frequency works for your business.
• Rushing to get funding. Desperation can lead to bad decisions. Even if you need money quickly, take the time to review the disclosure and compare offers. Our free matching service can help you find vetted funders who comply with the law, so you don't have to rush.

How Get Working Capital Now Can Help

At Get Working Capital Now, we know that finding the right funding partner can be time-consuming and confusing. That's why we offer a free matching service that connects Michigan small business owners with vetted, third-party funding partners. Our partners are required to comply with Michigan's disclosure law, so you can be confident you'll receive clear, honest terms. You simply tell us a little about your business, and we match you with funders who offer the types of financing you need-whether it's a term loan, MCA, line of credit, or equipment financing. There's no cost to you, and no obligation to accept any offer. We help you compare offers based on the disclosures you receive, so you can make an informed decision.

Conclusion

Michigan's Commercial Financing Disclosure Law is a game-changer for small business owners. It gives you the power to see the true cost of financing and compare offers on a level playing field. By understanding what the law requires, reading disclosure forms carefully, and avoiding common mistakes, you can secure funding that truly helps your business grow-without hidden costs. If you're ready to explore your options, let Get Working Capital Now match you with a vetted funding partner who respects your right to transparency.