It’s official: Texas’s House Bill 700 was signed into law by Governor Greg Abbott in June and took effect September 1, 2025, state records confirm. The new law is dedicated to regulating merchant cash advances (MCAs) and protecting businesses. We’ll take a look at what this new Texas MCA regulation does and who it impacts, plus explore its potential for becoming a nationwide model, below.
How MCAs Work
To give a quick overview, MCAs are typically offered by credit card processing companies and structured as the purchase of future receivables. Businesses receive a lump sum that’s paid back over time. In a typical setup, this repayment is made by scraping a percentage off the top of your future sales before the funds are sent to your bank.
MCAs Have Drawbacks
While this seems like a simple setup with easy repayment, there are some drawbacks. For instance, it’s impossible for a business to know exactly when the balance will be cleared, as sales may fluctuate from day to day.
Additionally, contracts can be loaded with fees that business owners don’t catch until they’re charged.
Contracts may also stipulate that the MCA provider can have a judgment in court issued against you, even if you aren’t present or aware. This allows them to bypass litigation and proceed with collection actions, like seizing assets. This is typically referred to as a “confession of judgment” clause.
But perhaps the greatest issue people have with them is that annual percentage rates (APRs) can vary wildly, with some starting as low as 15 percent and others climbing well into the hundreds. This issue is compounded by the fact that, historically, MCA providers have not been required to disclose the APR, which makes it very difficult for businesses to understand the true cost of MCAs or compare their funding options.
Texas Instituted a New MCA Law in 2025: House Bill 700
HB 700 offers many new protections for businesses and makes it easier for the state to take action against MCA providers that don’t follow the new regulations. While we’ll break this down in depth in just a moment, a brief synopsis is provided below.
What HB 700 Does Do
- Mandatory Transparency: MCA providers and brokers are required to be more transparent and provide specific disclosures.
- Bans on Certain Contract Terms: Specific predatory contract terms are now unenforceable.
- Registration Requirements: MCA providers and brokers are required to register with the Texas Office of Consumer Credit Commissioner (OCCC).
What HB 700 Does Not Do
- No Caps: There are still no caps on rates, finance charges, or fees.
- No APR Limits: The new law does not impose a maximum APR or limit the total cost of funding.
- No Limit on Total Costs: Those using MCAs can still face high costs if the market supports it.
Types of Funding Impacted by the New Merchant Cash Advance Law in Texas
While this is being labeled as an “MCA law,” the actual verbiage of the legislation does not discuss merchant cash advances. Instead, it uses the phrase “commercial sales-based financing.”
Commercial Sales-Based Financing Defined
As defined in HB 700, commercial sales-based financing is:
“…a transaction that is repaid by the recipient to the provider of the financing:
(A) as a percentage of sales or revenue, in which the payment amount may increase or decrease according to the volume of sales made or revenue received by the recipient; or
(B) according to a fixed payment mechanism that provides for a reconciliation process that adjusts the payment to an amount that is a percentage of sales or revenue.”
Examples of Commercial Sales-Based Financing
The language used in HB 700 is broad, but it still only applies to two main types of financing.
- Merchant Cash Advances: As mentioned earlier, an MCA is where you get a lump sum today and repay it through a share of future credit card or debit sales.
- Revenue-Based Financing: This is broader than MCAs and applies to businesses outside retail that pledge a share of overall revenue.
Types of Funding That Are Not Impacted by House Bill 700
The new small business funding regulations do not apply to some of the most common business funding solutions, such as:
- Traditional Loans: Bank loans, SBA loans, and term loans are not included.
- Lines of Credit: Revolving business credit lines are not covered unless structured as sales-based financing.
- Factoring: Selling your invoices to a factoring company, otherwise known as invoice factoring, in exchange for immediate working capital, isn’t covered by the new law because it’s legally treated as an account purchase, not as sales-based financing.
- Real Estate–Secured Financing: Transactions secured by property are excluded.
How to Tell if Your Business is Impacted by House Bill 700
Simply put, if your business is in Texas and uses or is offered an MCA, a revenue-based financing deal, or a broker who arranges these types of financing, HB 700 now governs that transaction.
Equally, if your business provides MCA loans, revenue-based financing, or brokers the deals for Texas-based businesses, you’re responsible for complying with the new laws.
Key Provisions of the New Texas MCA Regulations
Now that we’ve covered the basics, let’s take a deeper look at the key provisions of the new MCA laws.
Businesses Receiving Financing Gain Greater Transparency
You can finally see the true cost of an MCA in black and white before you accept it.
If your business is offered an MCA or other sales-based financing under $1 million, the provider must now give you a clear, standardized disclosure before you sign.
MCA Disclosure Requirements
Under the new MCA disclosure requirements, the provider must tell you things like:
- Total Financing Amount: How much you’re actually getting.
- Disbursement Amount: How much is sent to your account after fees.
- Finance Charge: The cost in dollars.
- Total Repayment Amount: What you’ll pay back altogether.
- Payment Structure: How payments are calculated (fixed or variable).
- Extra Fees: Late fees, draw fees, early payoff costs.
- Broker Compensation: Whether a broker is being paid, and how much.
Additional Contract Protections Are in Place
Certain aggressive contract terms are now banned. Most importantly, confessions of judgment (the clause that lets a funder declare you in default and get a judgment without you ever going to court) are void and unenforceable as part of MCA agreements in Texas.
How the Law Impacts MCA Funding Companies Operating in Texas
Naturally, providers must address the concerns above by providing greater transparency and adjusting contract terms. However, they are also impacted in two other key ways: registration and enforcement.
Providers and Brokers Must Register
Anyone offering or arranging these deals in Texas has to register with the OCCC annually and pay a fee. Those who were operating in the state when the law took effect have until December 31, 2026, to register. Anyone hoping to enter the market must register before operating, effective immediately.
This shift ensures the state knows who is in the market, allows regulators to suspend or terminate bad actors, and allows you to verify whether the broker or funder you’re dealing with is properly registered.
Will HB 700 Requirements Price Lenders Out of the Market?
While there have been some concerns raised about the cost of registration and new compliance requirements making it harder for lenders to operate in the state, it’s important to note that many other financing solutions already have similar laws on the books.
For instance, credit access businesses, such as payday and auto title loan companies, and regulated lenders, including installment loan companies and signature loan companies, have similar requirements. Both pay around $1,000 annually, per OCCC records.
The concept of registration is not new within the state, and the fees MCA providers are expected to pay are unlikely to have a major impact on the number of lenders or accessibility.
MCA Company Compliance is Being Enforced
Under the new law, the OCCC can investigate, enforce, and fine providers up to $10,000 per violation.
Is the New Texas Law a Model for MCA Regulation Nationwide?
Demand for transparency in MCAs has been growing for some time, and many states already have similar legislation. For instance, California requires MCA providers to disclose APRs and total repayment amounts, as Colonna Cohen Law reports. New York and New Jersey have comparable legislation. Others have requirements for registration and limits on interest.
The approach in Texas is unique in that it focuses more on awareness rather than governing what the two parties agree to. That means ensuring the business has the details required to make informed decisions and the opportunity to defend itself in court if need be.
With these things in mind, it’s quite likely the approach being leveraged in Texas will spread throughout the country, though some states, as we’ve already seen, are likely to layer in additional protections to limit the costs.
Secure Your Working Capital Through Factoring with Charter Capital
As discussed, the new MCA contract rules in Texas do not create an MCA interest rate cap. They also don’t change how the deals are structured. And most borrower-facing rules, especially the disclosure requirements, only apply when the recipient is in Texas. That means businesses across the country do not benefit from the additional transparency, and even those who are required to receive it may still find that MCAs are not the best funding solution for their needs.
Still, many of the challenges that draw businesses to MCAs and revenue-based financing remain. There’s a vital need for fast and accessible funding for small businesses—options that are not contingent on your credit score or years in business. However, that’s a gap that factoring fills, and in a comparison of MCAs and factoring, factoring usually comes out on top.
If your business requires capital, you can tap into your unpaid B2B invoices to accelerate cash flow. At Charter Capital, we make the process quick and easy, and our rates have always been both competitive and transparent. If you’d like to explore the fit for your business, request a complimentary rate quote.
This article is provided for informational purposes only and should not be treated as legal or financial advice. Speak with a professional about your unique situation if you need advice.
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