Texas Tightens Sales-Based Financing Rules Under HB 700
Updated: Jul 17
Key Points for Texas HB 700
Texas is implementing new rules under HB 700 that apply to commercial sales-based financing, including many MCA and revenue-based financing products.
Providers and brokers will have to register through NMLS by December 31, 2026.
Written disclosures must be provided at or before a specific offer is made.
Automatic debits will be restricted unless the provider has a valid, perfected, first-priority security interest.
Texas has finalized rules for regulating commercial sales-based financing, a category that includes many merchant cash advance and revenue-based financing products.
The Texas Finance Commission has adopted new rules under 7 TAC Chapter 86 to implement HB 700. The underlying statute took effect September 1, 2025, and the finalized rules create a more detailed compliance framework for providers and brokers operating in Texas with an effective date of July 9, 2026.
This is not a small update, with some good and not-so-good news.
It changes registration, disclosures, debit authorization, security interest requirements, and how regulators will view transactions labeled “business” financing that may actually be consumer loans in disguise.
Revenue-based financing has played an important role in the small-business market. Many merchants use it because banks are too slow, too rigid, or unwilling to lend to businesses that do not fit a conventional credit box. For those businesses, fast access to capital can be the difference between taking an opportunity and missing it.
But the industry also has to be honest about where the problems are.
Stacking multiple MCA or sales-based financing positions on top of each other can put intense pressure on a business’s cash flow. Poor disclosures can make it harder for a merchant to understand the true cost and structure of the deal. Aggressive debit practices can turn a useful funding product into a daily strain on the operating account.
Texas appears to be targeting those pain points.
1. NMLS Registration Brings More Accountability
One of the biggest changes is the requirement for providers and brokers of commercial sales-based financing to register through the Nationwide Multistate Licensing System, known as NMLS.
By December 31, 2026, covered providers and brokers operating in Texas must be registered.
That matters because NMLS is already used across many areas of financial services, including mortgage lending and state-regulated consumer finance. Bringing sales-based financing into that system gives regulators a clearer view of who is operating in the market.
The rules also focus on “key individuals,” including people who own 10% or more of the business or have power to direct management, such as a CEO, president, general partner, or similar control person. That is important because enforcement should not only sit with a company name on a contract. Regulators want to know who is actually controlling the business.
2. Disclosures Must Be Accurate at the Offer Stage
The Texas rules require written disclosures at or before the time a specific offer is made.
That should not be controversial. A business owner should know the terms before accepting financing.
What makes the Texas approach stricter is that regulators rejected a softer standard for disclosure mistakes. In other words, providers should not assume that a small clerical error is harmless simply because it can be corrected later.
If an error is discovered, the provider must promptly provide a corrected disclosure. But the correction does not erase the original violation.
That is a tough standard, and funders will likely need strong compliance controls around offers, contracts, pricing, fees, and payment terms.
Still, from the market’s perspective, clear disclosures can help responsible providers. Revenue-based financing is easier to defend when merchants understand what they are signing.
3. Automatic Debits Face a Much Higher Bar
The most disruptive part of the Texas rules may be the treatment of automatic debits.
Under the new framework, a provider cannot establish a mechanism for automatically debiting a recipient’s deposit account unless it has a validly perfected, first-priority security interest, a UCC-1.
The rules indicate that the security interest must cover all accounts receivable, not only a narrow stream of receivables. Providers generally need a UCC-1 financing statement to show that the interest is properly perfected.
This is where the law directly hits stacking.
If a funder is not in first position, it may not use automatic debits in Texas. That will make it much harder for multiple providers to provide financing to the same merchant account at the same time. Any other positions besides first may not set up automatic ACH debits, and third-party service providers are now banned from completing a debit that violates 86.313.
"Adopted §86.313(e) explains that a provider or broker may not accept payment of a debit in violation of §86.313 and may not direct a third party to complete a debit that violates §86.313."
From an industry perspective, this is both painful and understandable.
Stacking has been one of the hardest practices to defend. It can create problems for merchants, funders, brokers, and the broader reputation of the industry.
A rule that limits automatic debits to first-priority providers may reduce those situations. But it may also reduce flexibility for merchants who are already leveraged and still need capital.
That is the tension in this law. And other states have already followed suit, as Vermont just passed a law with similar regulations.
4. Post-Dated Checks Are Treated Like an Automatic Debit Mechanism
When the OCCC allowed comments from the public, they gathered very important intelligence, and several comments (some people should not have commented- but that's a story for another day) steered the regulators to block potential loopholes. Texas closed potential workarounds involving prewritten or post-dated checks.
Some industry participants argued that checks should not be treated like automatic debits because a person still has to deposit or process them. Regulators rejected that argument.
The rule focuses on the substance of the arrangement, not the form. If the merchant authorizes a mechanism in advance that will occur more than once, Texas may treat it as an automatic debit mechanism.
That means providers cannot simply move from ACH debits to post-dated checks to avoid the first-priority security interest requirement nor contract a third-party to do so on their behalf.
For compliance teams, the message is clear: regulators are looking at how money actually leaves the business account, not just what the payment method is called.
5. Deceptive practices
HB 700 and the Rules also prohibit providers from engaging in any unlawful, unfair, deceptive, or abusive act or practice related to a sales-based financing transaction, including failing to make accurate disclosures, filing a confession of judgment, or debiting amounts from a person’s account without authorization.
A Hard but Possibly Necessary Reset
The Texas rules will create real compliance work for the industry.
Providers and brokers will need to review registration requirements, disclosure workflows, offer generation, UCC filing practices, debit authorization procedures, and how they handle merchants with existing positions.
Some funders may decide Texas is too difficult to operate in. Others may adjust their systems, add different financing products as others have done already, and continue doing business under the new rules.
The most important impact may be on stacking.
Revenue-based financing is a legitimate and useful product when structured responsibly. Many small businesses need access to fast capital, and traditional lenders do not always serve them well.
But defending the product does not mean defending every practice around it.
If Texas reduces harmful stacking and forces clearer disclosures, the market could become healthier over time. Responsible funders may benefit from a more credible environment. Merchants may have a better chance of understanding their obligations before they sign.
At the same time, the industry should not ignore the downside. Tougher rules may reduce capital access for businesses that are already risky, overleveraged, or unable to qualify elsewhere. Some merchants may lose options, even if those options were expensive or imperfect.
That is the uncomfortable part of regulation. It can clean up a market, but it can also narrow the market.
The question now is whether Texas can rein in the worst behavior without pushing responsible revenue-based financing out of reach for the businesses that still need it.
