Equipment financing disclosure rules have changed what a financing offer attached to a gym equipment quote has to say, and the change runs opposite to how most dealers assume regulation works. These rules do not kick in on the large deals. They kick in on the small ones.
- The dollar cap runs the wrong way from instinct
- What California covers, and why lease financing matters here
- New York puts the rate on the offer itself
- Where equipment financing disclosure rules land on a dealer
- A quoting checklist for equipment financing disclosure rules
- A worked comparison, with stated assumptions
- Warning signs in a sales process
- Questions dealers ask
- Does a straight referral to a leasing company create a duty for us
- Are large fleet deals outside these rules
- Does this apply if we sell in a state with no such rule
- What to do before the next proposal goes out
California and New York both adopted standardized disclosure regimes for commercial financing offered to small businesses. Both put an annual percentage rate in front of the recipient before they sign. Both define the covered universe by a dollar ceiling rather than a floor.
For a dealer, that means the 90,000 dollar boutique studio build-out is more likely to sit inside the rule than the 3 million dollar multi-site refresh. If your financing conversation is handled by a third-party funder, the paper is probably theirs. If you carry any of it yourself, the question is yours.
The dollar cap runs the wrong way from instinct
California’s statute, SB 1235, defines a recipient as a person presented with a specific commercial financing offer “equal to or less than five hundred thousand dollars ($500,000),” according to the bill text. New York’s Commercial Finance Disclosure Law does not apply to an individual transaction in an amount over “two million five hundred thousand dollars,” and its implementing regulation measures that amount by the aggregate the recipient may receive under the agreement rather than the size of any single advance.
Both ceilings exist because the point of the statutes was small-business protection. The practical consequence for equipment sellers is the inversion described above, and it catches people who assume compliance scales with deal size.
Note the other end of California’s definitions as well. A commercial loan there is defined using a 5,000 dollar principal floor, or any loan under an open-end credit plan, used for non-personal purposes. Very small tickets can fall below that floor while still sitting inside other covered categories.
What California covers, and why lease financing matters here
California’s definition of commercial financing is broad in a way that reaches equipment sellers directly. It covers an accounts receivable purchase transaction including factoring, an asset-based lending transaction, a commercial loan, a commercial open-end credit plan, and a “lease financing transaction” intended by the recipient for use primarily other than personal, family or household purposes.
Lease financing sits in that list by name, and the statute defines it as a lease of goods whose purchase option creates a security interest under the Commercial Code. That generally includes a lease the customer cannot cancel that ends in a nominal buyout, such as 1 dollar, while a true lease with a fair market value option may fall outside it. Any dealer who has built a leasing motion to move equipment should read that clause slowly.
The Department of Financial Protection and Innovation’s regulations were approved to become effective as of December 9, 2022. Per the DFPI release on the regulations, providers must disclose the amount of funding the business will receive, the annual percentage rate calculated for the transaction, the payment amount where applicable, the term, details of prepayment policies, and, for products with no monthly payment, the average monthly cost.
The statute also carries exemptions that matter more than the disclosure list for many dealers. They include depository institutions, Farm Credit Act lenders, transactions secured by real property, certain transactions of at least 50,000 dollars in which the recipient is a vehicle dealer as defined in the Vehicle Code, a vehicle rental company, or an affiliate of either, and low-volume providers.
That last exemption is the one a California dealer that only occasionally finances its own sales is most likely to rely on. It covers a person making no more than one commercial financing transaction in California in a 12-month period, or five or fewer such transactions in that period that are incidental to its business. A dealer doing financing twice a year is in different territory from one building it into every proposal.
New York puts the rate on the offer itself
New York’s 23 NYCRR 600 implements the state’s Commercial Finance Disclosure Law and is specific about timing and method. Disclosures are required at the time a specific offer of financing is extended to a recipient, and a provider includes a financer who communicates that offer directly to the recipient or through the recipient’s agent or broker.
The annual percentage rate must include all finance charges and be calculated under the United States Rule or the actuarial method. For open-end financing the rate assumes the full approved credit limit is borrowed at origination with no later draws and minimum on-time payments. Rates are expressed to two decimal places, and the regulation sets tolerances of generally one-eighth of a percentage point, or one-fourth for irregular transactions.
Beyond the rate, the required items vary by product type and include the amount financed, the finance charge, total payments, payment terms, the term, prepayment terms, collateral requirements and avoidable fees. The regulation builds formatting sections for sales-based, closed-end, open-end, factoring, lease financing and asset-based lending transactions, plus a catch-all section for other commercial financing.
Transactions covered by the federal Truth in Lending Act with a compliant disclosure are excluded. The lease financing section reaches leases that create a security interest in the goods, and the APR it requires includes the anticipated cost to acquire the property at the end of the lease term. A lease as defined in section 2-A-103 of the Uniform Commercial Code, generally a true lease, is exempt from the statute, so ask counsel before concluding how a specific lease structure is treated in New York.
| Question | California | New York |
|---|---|---|
| Size ceiling | Offers equal to or less than 500,000 dollars | Individual transactions over 2,500,000 dollars are exempt |
| Lease financing named in scope | Yes, for leases whose purchase option creates a security interest | Yes, for leases that create a security interest; true leases under UCC 2-A-103 are exempt |
| Rate disclosure | Annual percentage rate calculated for the transaction | Annual percentage rate including all finance charges, to two decimals |
| When it is due | At the time a specific commercial financing offer is extended | At the time the specific offer is extended |
| Low-volume relief | One transaction, or five or fewer incidental, in 12 months | No more than five transactions in New York in 12 months |
Read the table as a navigation aid, not a compliance determination. FEX is not a law firm and this is not legal advice, so your counsel should confirm how each rule applies to your structures and your states.
Where equipment financing disclosure rules land on a dealer
Three positions are common, and they carry different exposure.
The first is the pure referral. You introduce the client to a funder, the funder makes the offer, and the funder generally carries the disclosure duty as the provider. Your risk is generally reputational rather than regulatory, which is still worth managing, because a client who gets a rate disclosure that contradicts your verbal pitch remembers that.
The second is the broker position. You shape the structure, present the numbers, and the funder papers it. Both states’ regulations treat a financer that communicates an offer through the recipient’s agent or broker as a provider, and New York’s statute also generally includes “a person who solicits and presents specific offers of commercial financing on behalf of a third party,” so who is doing what becomes a contract and compliance question rather than an assumption.
The third is in-house paper. You carry the lease or the installment agreement on your own balance sheet. That is where the low-volume exemption, the dollar thresholds and the disclosure content all become your operational problem, and where your leasing structures need a compliance read before the next quarter.
A quoting checklist for equipment financing disclosure rules
- Map where your financing actually comes from. List every funder, lessor and in-house arrangement you used in the last twelve months, with a count of transactions per state.
- Count against the low-volume line in California. If you are near one transaction, or near five incidental ones, you are near the edge of an exemption you may be relying on without knowing it.
- Check the ceiling, not the floor. Sort last year’s financed deals by size and see how many sat under the applicable caps. Do not assume the count is small.
- Ask each funder for its disclosure form. Read the annual percentage rate it produces against the payment schedule you have been quoting. Any gap is a sales conversation waiting to go wrong.
- Fix the verbal pitch. Train the sales team to quote payment and term without implying a rate, because a disclosed annual percentage rate including all finance charges often reads higher than the figure a salesperson has in mind.
- Separate price from financing in the proposal. Clean separation makes quote leveling work for the buyer and keeps your equipment margin out of a rate discussion.
- Have counsel review in-house paper annually. Both regimes have moving parts. California’s annualized rate requirement was originally set to expire on January 1, 2024, until SB 33 removed that sunset, and SB 362 added APR and rate-terminology rules that took effect January 1, 2026, which is a reminder that the detail shifts.
A worked comparison, with stated assumptions
The figures below are assumptions for illustration, not industry data or a rate quote.
Assume a studio financing a 96,000 dollar strength and cardio package over 48 months. Assume the funder’s payment is 2,420 dollars a month, with a 1,500 dollar documentation fee and a 1 dollar end-of-term purchase option.
Total payments are 116,160 dollars. Add the documentation fee and the client has paid 117,660 dollars against 96,000 dollars of equipment, so 21,660 dollars in financing cost. A salesperson describing that as “about five and a half percent” because 21,660 divided by 96,000 divided by four years comes to roughly 5.6 percent is not describing an annual percentage rate at all, and a disclosure that includes all finance charges on a declining balance will say something materially higher.
That gap is the real risk in the sales process. It is not usually dishonesty. It is simple-interest intuition colliding with an amortized rate, in front of a buyer who now has a standardized number on the page.
Warning signs in a sales process
- Proposals that quote a monthly payment with no term or total alongside it.
- A rate figure in your collateral that nobody can reproduce from the payment schedule.
- In-house financing offered on more deals each year with no count kept by state.
- Financing used to close a gap in equipment margin rather than to solve a cash-flow problem for the client.
- A funder relationship with no copy of its disclosure form in your files.
- Floor plan arrangements on your own inventory confused with customer financing. Those are different transactions, and your floor plan facility does not answer a customer disclosure question.
Questions dealers ask
Does a straight referral to a leasing company create a duty for us
Generally the disclosure duty sits with the provider making the specific offer. In New York, though, the statute’s provider definition also generally includes a person who solicits and presents specific offers on behalf of a third party, while the regulation says contacting a financer only to refer the recipient does not make someone a broker. Whether your role makes you something more than a referral source depends on the facts and on the state, which is a question for counsel.
Are large fleet deals outside these rules
Often yes on the size test, because both regimes are capped. California defines a recipient by an offer equal to or less than 500,000 dollars, and New York’s law exempts individual transactions over 2,500,000 dollars. That does not make a large deal unregulated in every respect, only outside those particular caps.
Does this apply if we sell in a state with no such rule
The two regimes described here are state law, and their reach depends on where the recipient and the transaction sit. Several other states have adopted their own commercial financing disclosure statutes, so the practical answer is to inventory the states you actually sell into rather than assume a single national rule.
What to do before the next proposal goes out
Pull last year’s financed deals, sort them by state and size, and count how many sat under the caps. Then read one funder’s disclosure form next to one of your own proposals, line by line. Equipment financing disclosure rules are less about new paperwork than about whether the number your salesperson says out loud survives contact with the number the funder has to print, and that is a sales-training problem as much as it is a legal one. Dealers who have already tightened their credit terms discipline usually find this an easy habit to extend.
