New CASH Act Mandates Transparency for Small Business Financing Under $500K, Overrides State Protections

If you run a small business and occasionally sell your invoices for quick cash—a process called factoring—this new piece of legislation, the Capital Access for Small Businesses Harmonization Act (CASH Act), is going to change how those deals are disclosed to you. Factoring is essentially selling your accounts receivable to a third-party 'provider' for immediate money, minus a fee. This Act mandates that if the total value of your factoring agreement is expected to be under $500,000, the provider must give you a detailed written disclosure before you sign anything (SEC. 2).

The New Transparency Mandate

This disclosure requirement is designed to give small business owners a clear, apples-to-apples comparison of the financing costs. The provider must spell out the difference between the invoice's full value and the cash you actually receive, list every potential fee, and detail any money they plan to hold back (a 'reserve') until the invoice is paid (SEC. 2). To make sure it sinks in, they also have to include a specific example based on a $10,000 invoice, showing exactly what you’d pay and what you’d net. For a construction subcontractor or a small manufacturing firm trying to manage cash flow, this is a huge step up from deciphering vague contract language; it forces the provider to put the true cost of the money right in front of you.

The Catch: What Happens to State Laws?

Here’s where things get complicated. While the disclosure rules are good news for transparency, the Act includes a powerful federal preemption clause (SEC. 3). This means that once this federal law sets the disclosure standard, no state or local government can create any additional or different disclosure rules for these factoring transactions. For small businesses in states that have already passed, or might want to pass, stronger consumer protections or more detailed disclosure requirements than what the CASH Act outlines, those state-level protections are effectively wiped out or blocked. While this creates a uniform playing field for the financial providers who operate across state lines, it removes the ability of states to step in and offer customized, stronger protections for their local businesses.

Where the Disclosure Stops

It’s important to note two major limitations in the bill. First, the disclosure requirement only applies to the initial factoring facility agreement (SEC. 2). If you’ve been working with a provider for a while and you modify or renew your existing contract, the provider is not required to give you a new, updated disclosure. This means if the terms change significantly during a modification, you lose the benefit of the mandated transparency at a critical moment. Second, the entire disclosure requirement hinges on the provider and the small business ‘reasonably believing’ the total deal will be under $500,000. This subjective language (SEC. 2) could potentially create loopholes or disputes over whether a disclosure was actually required, especially if a deal ends up exceeding that threshold later on.