Virginia Disclosure Laws: What Your Funding Offer Must Tell You

Why Virginia Disclosure Laws Matter for Your Business

When you need working capital, equipment or a cash advance for your small business, the offer you receive can be confusing. Some funders quote a factor rate, others an interest rate, and still others list only a daily payment. Without a standard format, comparing offers is nearly impossible. Virginia has a disclosure law aimed at exactly that problem for sales-based financing, which includes many merchant cash advances: it calls for a standardized written disclosure that spells out the cost before you sign.

The stakes are real. A funding agreement can commit your business to months of daily or weekly debits, and the gap between a fairly priced offer and a poorly priced one can add up to thousands of dollars even on a modest advance. A standard disclosure will not make the choice for you, but it makes the choice visible. This post explains what the disclosure covers, what else you should ask for and how to use the numbers to make a smart decision for your Virginia business.

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What Are Virginia Disclosure Laws for Business Funding?

Virginia's disclosure law for sales-based financing puts the obligation on the provider: for sales-based financing deals, meaning funding repaid from a share of your sales or revenue, the company offering the money must give you a standardized written disclosure before you sign. The disclosure is built around the numbers that matter most: the amount of funding provided, the total amount you will repay, the total dollar cost, how and how often payments are taken, and whether paying early changes the cost.

It covers sales-based financing, which includes many merchant cash advances; other kinds of business financing may not be covered, and some transactions are exempt. Because the details are technical and can change, confirm what applies to your offer with the Virginia Attorney General's office, the state's financial regulator or a business attorney, and ask the funder directly whether your deal comes with the disclosure.

Which Types of Financing Are Covered?

The law is aimed at sales-based financing, such as many merchant cash advances. Other products Virginia owners commonly see may not come with this disclosure, so ask the funder, and ask for the same numbers in writing either way:

• Merchant cash advances (MCAs): a lump sum in exchange for a percentage of future sales. MCAs are usually structured as a purchase of future receivables rather than a loan, which is why they are priced with a factor rate instead of an interest rate. Whether a specific agreement is treated as a loan depends on its terms, and courts have reached different conclusions, so an attorney should review anything unclear.
• Business lines of credit: revolving credit you draw from as needed.
• Equipment financing: loans or leases for specific equipment.
• Invoice factoring or receivables financing: selling unpaid invoices for immediate cash.
• Term loans: a fixed amount repaid over a set period.

If an offer for any of these arrives without a disclosure, ask whether one applies, and if the funder says no, ask why in writing. A reputable funder will answer willingly and give you the key numbers either way.

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What Information Must the Disclosure Include?

For a covered deal, the disclosure is a standardized written document you receive before you sign. Its core items are:

• Amount of funding provided: the money that actually reaches your account, which can be lower than the approved amount when fees come out first.
• Total repayment amount: the full sum you will hand back over the life of the deal.
• Total dollar cost: what the money costs you, in dollars, above the amount you receive.
• How and how often payments are taken: whether it is a fixed debit or a share of sales, how frequently it happens and how large each payment is.
• Prepayment: whether settling early lowers your total, adds a charge or makes no difference.

A good offer goes beyond that core. Ask the funder to show the factor rate if there is one, every fee by name, the estimated term and whether a personal guarantee or collateral is required. If you want an annualized figure for comparison, ask whether the funder can provide an estimated APR, and treat any such number as an estimate based on an assumed repayment speed.

Keep in mind what a disclosure is and is not. It is a summary of cost and payment terms, delivered before you commit. It is not the contract, it is not a recommendation and it does not mean the offer is affordable for your business. That judgment still depends on whether the payments fit your cash flow and whether the money will earn more than it costs.

How to Read and Compare Disclosure Forms

Once you have disclosures from more than one funder, start with the dollar figures. Here is an illustrative example, with numbers chosen only to show the math:

• Offer 1: $10,000 provided, $12,000 total repayment, collected by daily debits of about $95 over roughly six months (about 126 business days). Total dollar cost: $2,000.
• Offer 2: $10,000 provided, $11,500 total repayment, collected by 26 weekly debits of about $442 over the same six months. Total dollar cost: $1,500.

Over the same period, the second offer costs $500 less, and weekly payments may be easier to manage than daily ones. Laid out this way, the comparison takes a couple of minutes.

Two quick checks keep a disclosure honest. First, subtract the amount provided from the total repayment; the result should match the stated dollar cost. Second, multiply the payment by the number of payments you expect to make; you should land near the total repayment. If either check fails, ask the funder to walk you through the difference before you go further.

If you want to go a step further, ask each funder for an estimated APR or have an accountant calculate one. For these two offers, the estimates would be roughly 75 percent and 55 percent. Both are far above the 20 percent and 15 percent the headline numbers might suggest, because the balance is paid down quickly and you have the full amount for only a short time.

Pay attention to the payment schedule, too. A cheaper offer with daily debits might strain your cash flow more than a slightly pricier one with weekly payments. The disclosure gives you both pieces of information so you can weigh them together.

Practical Tips for Virginia Business Owners

• Always request the disclosure before signing. If a funder hesitates or says it does not have one, ask why in writing. Legitimate funders will explain.
• Compare at least three offers. Look at the amount provided, the total repayment and the payment schedule, not just the size of each payment.
• Ask about fees not listed. If something seems missing, like an origination or documentation fee, ask the funder to confirm it in writing.
• Understand what a merchant cash advance really costs. A factor rate describes the total, not the speed. When an advance is collected in a few months, the annualized cost can be several times the factor-rate percentage, so decide whether the purpose justifies the price.
• Ask what happens in a slow month. If payments are a fixed daily debit, ask whether they can be adjusted when sales drop, and get the answer in writing.
• Check the prepayment terms. If you plan to pay off early, find out whether that lowers the total. Some funders offer a discount; with many MCAs the total stays the same.
• Keep a copy of the disclosure. Save it with the contract and any emails about the terms. It is your record of what was offered.

Common Mistakes to Avoid

Even with a disclosure in hand, business owners sometimes slip up. Avoid these pitfalls:

• Focusing only on the payment amount. A low daily payment can hide a high total cost. Always check the total repayment and the dollar cost.
• Ignoring the annualized cost of an MCA. Dollar figures tell you what you pay; an estimated APR tells you how expensive that is over time. Ask for both when an advance will be collected quickly.
• Assuming every funder is transparent. Most reputable funders will provide clear numbers. If a funder refuses, walk away.
• Layering a second advance on the first. Two sets of daily debits can overwhelm cash flow quickly, so total every payment you already owe before you take on another.
• Signing without reading the fine print. The disclosure is a summary; the contract may add a personal guarantee, a lien on business assets or a confession of judgment, which can let a funder get a judgment quickly if you default. Several states restrict them. Ask an attorney about any of these terms before you sign.
• Not shopping around. The first offer is rarely the only one available. Use the disclosures to compare several.

How Merchant Funding Nearby Can Help

Merchant Funding Nearby connects Virginia small business owners with vetted third-party funding partners. The service is free; we are not a lender and do not make credit decisions or promise approval. Offers, and any disclosures that come with them, come directly from the funders, and you are free to compare them with offers from anywhere else.

Virginia's disclosure law gives you a consistent look at the key numbers before you take on sales-based financing. Ask for the disclosure, compare offers and do not sign until you are comfortable with the terms. Should a signed deal turn out to differ from what you were told, keep every document and message, raise the discrepancy with the funder in writing, and report deceptive practices to the Virginia Attorney General's office or the FTC. A business attorney can review your options with you.