Los Angeles Apparel and Logistics: 7 Options Under California SB 362

Two Industries, One Cash-Flow Problem

An apparel house in the Fashion District and a warehouse operator off Alameda Street look like different businesses until you put their bank statements side by side. Both get paid on somebody else’s calendar. A cut-and-sew order funds when the buyer’s accounts payable department releases it, a chargeback for a late delivery window arrives two months later and comes straight off the next check, and a logistics company waits on a shipper whose terms were set by a procurement team that has never seen your yard. Both carry fixed weekly costs that do not move: sewing floor labor, a lease on a building with a long tail, drivers, insurance. And both get pitched the same product, an advance repaid by a fixed debit that assumes revenue arrives evenly.

California changed what a funder has to tell you before it takes that money, and the change is recent enough that most agreements in circulation predate it. Since January 1, 2026 a provider quoting a rate or a price after making a specific offer has to restate the annual percentage rate alongside it. That duty sits on top of a disclosure regime that has been in force since December 2022. None of it hands you a lawsuit. What it does is give a Los Angeles merchant a set of documented failures to put on the table, and this page is about converting those into terms. Our companion page on the specific disclosure failures worth pointing at takes the form apart line by line.

1. Make Sure You Are Reading the Right SB 362

Two California bills carry that number and only one of them has anything to do with your advance. The one that matters is SB 362 (2025, Grayson), Chapter 352, Statutes of 2025, approved October 6, 2025 and operative January 1, 2026. It repealed Financial Code §22805, renumbered the old §22806 into §22805, and added a new §22806 and a new §22807. The other is SB 362 (2023, Becker), the Delete Act, Chapter 709, which governs data brokers at Civil Code §§1798.99.80 and following. If a broker or a consultant cites SB 362 to you and starts talking about data deletion requests, they have the wrong statute and probably the wrong analysis.

The duties themselves are older than the 2025 bill. Division 9.5 of the Financial Code came from SB 1235 (2018, Glazer), Stats. 2018 ch. 1011, which created the commercial financing disclosure scheme at Fin. Code §22800 and following. The Department of Financial Protection and Innovation then wrote the regulations at title 10 of the California Code of Regulations, §§900 through 956, approved by the Office of Administrative Law on June 9, 2022 and effective December 9, 2022. SB 33, Stats. 2023 ch. 376, amended the scheme effective January 1, 2024.

Coverage is where most merchants stop reading and should not. The disclosure duty attaches to an offer of commercial financing of $500,000 or less, and California is one of only two states in the country that require an annual percentage rate on the form, under §22802(b)(6). So the $180,000 advance your apparel company took last spring is inside the statute, and the $750,000 facility your logistics company signed is outside it. Check the offer amount before you build any argument, because the answer decides which of the seven items below are available to you.

2. Collect Every Number Quoted After the Offer Was Made

New Financial Code §22806 does two things and the second one is the useful one. First, it bars a provider from using the word interest or the word rate in a deceptive way, which is aimed at the sales habit of describing a factor rate as though it were an interest rate. Second, and this is the part worth an afternoon of your time, it requires that whenever a charge, a pricing metric or a financing amount is stated after a specific offer has been made, the annual percentage rate be restated alongside it. Every time. Not once on a form at signing.

Think about where those statements actually live in your file. The follow-up email confirming the buy rate. The text message from the broker adjusting the payback after you asked for more money. The renewal call where somebody quoted you a new daily number against a payoff. The revised term sheet sent after underwriting came back. Each of those is a moment where the APR was supposed to appear next to the figure, and in the deals we look at it usually does not, because the sales process was built before the rule and nobody rewrote the scripts. Print the whole thread with headers, in order, and hand it to counsel as one exhibit.

One caution keeps this honest. Section 22806 became operative January 1, 2026, so it governs conduct from that date forward, and it does not retroactively add a duty to the phone call you took in 2024. For older paper the argument runs through the original disclosure obligations in Division 9.5 and the DFPI regulations that have applied since December 2022. Sort your positions by the date the offer was made before anybody drafts a demand letter, because you will be making two different arguments to two different sets of funders.

3. Price the Leverage Honestly, Because You Do Not Get to Sue

Section 22807 is the enforcement bridge and it repays careful reading. A violation of Division 9.5 is a violation of the California Financing Law where the transaction is subject to that law, and otherwise it is an unfair, deceptive or abusive act under the California Consumer Financial Protection Law. Both routes run through the DFPI. Neither one is a claim you file in Los Angeles Superior Court on Monday morning.

California sits in an unusual middle position on this and it is worth knowing exactly where. Texas wrote an express bar into its statute at Tex. Fin. Code §398.102, and Florida did the same at Fla. Stat. §559.9615. California did neither. Division 9.5 contains no express private right of action and no express prohibition on one, which leaves open whether a violation can be borrowed into an unfair competition claim under Business and Professions Code §17200. No published California appellate decision answers that question, and no published DFPI enforcement order rests on Division 9.5 either. Any lawyer who tells you the answer is settled has not looked.

So what is it worth at the table? The exposure is regulatory, reputational and multistate. A funder writing paper in California is usually writing it in New York and Texas too, where the same practices carry per-violation penalties and, in Texas, a registration obligation with the Office of Consumer Credit Commissioner. A complaint to the DFPI costs you a form. Funders price the risk of a regulator reading their sales scripts very differently from the way they price a merchant’s hardship letter, and that difference is the entire negotiating value of this item.

4. The Licensing Question That Can Void the Whole Contract

This one is a long shot with an enormous payoff, and it belongs in the file for that reason alone. Financial Code §22100(a) says no person shall engage in the business of a finance lender or broker without obtaining a license from the commissioner. Then §22750(b) says that if any provision of the division is willfully violated in the making or collection of a loan, whether by a licensee or by an unlicensed person subject to the division, the contract of loan is void, and no person has any right to collect or receive any principal, charges or recompense. Subsection (a) does the same where charges beyond those permitted are willfully charged, contracted for or received.

Getting there takes two steps and the first one is the hard one. The advance has to be a loan rather than a purchase of receivables, which means winning the recharacterization argument on the reconciliation clause, the fixed daily amount, the guaranty and the events of default. Then the violation has to be willful. Neither step is automatic and no published California decision applies §22750 to a merchant cash advance, so this is an argument on the statute rather than a settled rule. Say that plainly in any demand letter, because overstating it is how a good argument gets discounted.

Why raise it anyway? Because the downside case for the funder is total. Most defenses reduce a balance. This one, if it lands, eliminates principal as well as charges. A funder that is comfortable litigating a disclosure dispute for eighteen months tends to be markedly less comfortable litigating a case where a bad day means it collects nothing, and its outside counsel has to write that risk into a reserve memo. That asymmetry is the reason experienced counsel puts the licensing question in the first letter rather than saving it.

5. Count the Garment Wage Exposure Sitting Behind the Advances

A restructuring that only counts funders will understate what your apparel company owes, sometimes badly. Labor Code §2673.1 makes a garment manufacturer, a contractor or a brand guarantor that contracts with another person for the performance of garment manufacturing operations jointly and severally liable for the full amount of unpaid minimum, regular, overtime and other premium wages, expense reimbursement and other compensation including interest, plus the employee’s attorney’s fees and costs, and civil penalties for failure to secure workers’ compensation coverage. Liquidated damages equal to the wages unlawfully withheld are part of the package.

The definitions in Labor Code §2671 are broader than the words suggest. Garment manufacturing covers sewing, cutting, making, processing, repairing, finishing, assembling, dyeing, altering a garment’s design, causing another person to alter a garment’s design and affixing a label, among other operations. A brand guarantor is any person contracting for the performance of garment manufacturing, whether the party it contracts with does the work itself or hires contractors or subcontractors, and the definition reaches arrangements involving brand or name licensing. Claims go to the Labor Commissioner, who holds a meet-and-confer conference and then a hearing on a statutory schedule.

The practical consequence for a workout is straightforward and it changes the order of operations. Wage liability of this kind does not go away because you settled with a funder, and it does not go away because the sewing floor closed. Any settlement structure that spends your available cash on the advances first, while contractor wage claims sit unresolved behind them, is building a second failure into the plan. Get the wage exposure quantified before anybody signs anything, and tell counsel the truth about the contractor relationships even where the paperwork was thin.

6. Check the Drayage List Before You Hire the Next Carrier

For anyone moving containers out of San Pedro Bay, Labor Code §2810.4 in its current form, operative January 1, 2025, is the provision that turns somebody else’s wage problem into your balance sheet problem. The Division of Labor Standards Enforcement posts on its website the names, addresses and essential information for port drayage motor carriers with unsatisfied judgments or citations involving wage violations or misclassification. A customer that uses a listed carrier shares with that carrier all civil legal responsibility and civil liability for unpaid wages, unreimbursed expenses, damages and penalties owed to the drivers.

Read the definitions before you assume the section misses you. A customer is a business entity that engages a port drayage motor carrier, with carve-outs including entities with fewer than twenty-five workers, governmental entities, and marine terminal operators conducting equipment interchange. A port drayage motor carrier includes successors to a prior carrier, which is the provision that catches the familiar practice of shutting one entity and opening another with the same tractors and the same dispatcher.

Fold this into the restructuring rather than treating it as a compliance chore. If your company is a customer, checking the list before each new carrier engagement is a five-minute task that prevents a contingent liability nobody underwrote. If your company is the carrier, appearing on that list will cost you customers faster than any funder’s collection letter, which means resolving a wage citation can be more urgent than resolving a third-position advance. Sequence accordingly, and say so out loud when a funder pushes for a payment plan that consumes the cash a citation needs.

7. Protect the Account, Because a California Levy Is a Snapshot

California enforcement has a feature worth planning around. Under Code of Civil Procedure §700.140, a levy on a deposit account reaches the balance in the account at the time the levy is served. It is not a rolling attachment that swallows tomorrow’s deposits, which is materially different from Pennsylvania, where service on the garnishee attaches property arriving afterward. The practical translation is that in California the damage from a levy is bounded by what was sitting there that morning, and the sum you keep in a single account is a decision you are making whether or not you think of it that way.

None of that is an invitation to move money around ahead of a creditor. Transfers made to hinder, delay or defraud a creditor get unwound under the Uniform Voidable Transactions Act, and doing it after a judgment or in the face of a threatened one invites a fraudulent transfer claim that costs far more than the levy would have. What is legitimate is ordinary treasury practice adopted for ordinary business reasons: knowing which accounts hold operating cash, knowing which bank holds your line, and understanding that a bank with a setoff right of its own is a different risk from a bank without one. Get that reviewed by counsel, not by a broker.

The rest of the defensive work is timing. Once you know a judgment exists, the questions are whether it was entered on proper service, whether the entity named is the entity that signed, and whether any of the exemption or claim procedures apply to the person or property the creditor is chasing. Those all have short clocks. Our page on the warning signs that come before a freeze lists what usually shows up in the two or three weeks before an account gets hit, and in the Los Angeles files we work, at least two of those signals were visible in the email traffic before anyone called us.

Who Should You Call? Our Top-Rated Business Debt Firms

One firm on this list works the entire lifecycle of a business debt file, from stopping the daily debits through attorney-led negotiation, UCC lien removal, and a signed release. The other two cover broader debt categories that often sit alongside the advances. Choose accordingly.