Things that won't be bigger in Texas: Sales-Based Financing

It’s said that things are bigger in Texas, but for Sales-Based Financing, that may no longer be a possibility. Thanks to a Texas billionaire, financing options for businesses are set to be reduced if Texas Governor Greg Abbott signs HB 700 into law before Saturday, June 22nd, although hope remains for something to change. 

The bill, as passed by the State House late on Wednesday 5/28, sets new policy for all Sales-Based Financing transactions, which range from registration for funders and brokers, financial penalties for violations, to the most important restriction- a ban on automatic ACH debits on the business owner's deposit account with some exceptions. Those exceptions and how everything in this bill applies to new sales-based financing transactions are going to be the hot topic of discussion for the foreseeable future, not only for what it means in Texas, but what ripple effect it could have in other states.

Amendment with ACH debit restrictions

Party Votes

This bill was sponsored by two Republicans. The Texas House is made up of 88 Republicans and 62 Democrats. The vote for Yea was R=71, D=27, and the Nay votes at R=8, D=15, with the remaining absent or not voting.

Most think of Republicans as the party of less regulation, providing businesses with more freedom to operate and enabling businesses to gain more access to capital, but this bill does the opposite. This whole process has been a lesson on how things operate when the incentive and determination to make certain changes are there.

Who's behind this bill?

This bill was backed by a Texas billionaire, who made his fortune in the oil and gas industry after playing college football at Texas Tech, who has part ownership with his brother of a factoring company. Given his determination to restrict the capabilities of the sales-based financing (revenue-based financing, merchant cash advance) industry and thus competition, he got the main Factoring industry associations, the International Factoring Association (IFA) & American Factoring Association (AFA), to support this bill. They moved swiftly to get something done and, within the last couple of weeks, added the amendment regarding ACH debits to the bill that was the game changer. 

Whats next

We shall see if anything prevents Governor Abbott from signing this into law or not by June 22nd. If you are against this bill, you are encouraged to contact the Governor's office.

This is not legal advice, so seek counsel, but since the law has not been signed yet, funding can still take place. There does not seem to be a retroactive component to this bill, so existing funding agreements would not be affected even if it does become law, which would take effect September 1, 2025. Initial rules will need to be in place by September 1st of 2026, and provider registrations will be required no later than December 31, 2026.