Signed into law by Governor Greg Abbott on June 21, 2025, HB 700 introduces Chapter 398 to the Texas Finance Code, specifically regulating commercial sales‑based financing (CSBF)—including merchant cash advances (MCAs), revenue‑based loans, and similar products. It takes effect September 1, 2025, and applies to any provider or broker offering CSBF in Texas, whether operating in‑state or online.
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Why This Matters
Texas becomes one of the first large states to formally categorize CSBF as a regulated financing product—addressing long‑standing concerns over high‑cost structures, predatory clauses, and lack of transparency in these products . With HB 700, brokers and providers must now adhere to disclosure standards and register with the state—an overdue step toward consumer protection in the alternative finance space.
Key Provisions of HB 700
1. Definitions & Scope (Ch. 398.001–398.002)
CSBF is defined as financing repaid via a percentage of sales or revenue, including agreements with fixed payments plus reconciliation to revenue. Providers and brokers offering specific CSBF deals to Texas recipients are subject to the law, regardless of where they operate.
2. Exemptions (Sec 398.003)
The law exempts traditional financial institutions such as banks, credit unions, farm credit lenders, as well as transactions tied to real estate, motor‑vehicle leases, rentals, or in‑house financing by manufacturers
3. Disclosure Requirements (Sec 398.051–398.052)
For CSBF under $1 million:
Disclose total financing, disbursement amount, finance charge, total repayment, repayment period, fixed or variable payment details, and projected monthly payments.
Itemize additional fees (draw, late payment, returned payment).
Include prepayment/refinance charges and any collateral terms.
Clearly state broker compensation and obtain recipient's signature before finalizing.
These obligations bring clarity to what were once obscure financing arrangements.
4. Broker & Provider Registration (Sec 398.053–398.054)
Providers/brokers must register with the Office of Consumer Credit Commissioner, pay fees (initial and annual renewal), and file by December 31, 2026 for operations beginning September 1, 2025. Any changes to their registration must be reported within 90 days.
5. Prohibited Terms (Sec 398.055–398.056)
No confession of judgment clauses or similar provisions—these are void.
Automatic debits from recipients’ accounts are banned unless the provider holds a first-priority perfected security interest—effectively limiting cash-flow grabs without adequate collateral.
6. Enforcement & Penalties (Sec 398.005 & 398.101)
The Consumer Credit Commissioner can enforce, suspend, and assess penalties for rule breaches.
Violators face a civil penalty of $10,000 per infraction, with no private lawsuits allowed.
7. Rulemaking Timeline (Sec 2)
By September 1, 2026, the Finance Commission must implement rules, and the Commissioner must set registration fees and forms.
Brokers/providers have until December 31, 2026, to register
More on this law soon on our blog.
It will be interesting to see how the top tier funders navigate thru this . No one is going to just let 11 -12 % of all funded deals go away .
I think Merit Business Funding will be in a great position since we are bank owned. Banks are exempt from this law .