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Texas MCA Law: What HB 700 Means for Your Business

Business owner compares MCA offer and contract

A merchant cash advance (MCA) is legal in Texas, and since September 1, 2025 it has been regulated by a dedicated statute. Texas HB 700 added Chapter 398 to the Finance Code. It requires providers and brokers to register, requires disclosures on offers under $1 million, and voids confession-of-judgment clauses. This guide explains what that means if you already have an MCA, are about to sign one, or are struggling to keep up with daily payments.

Key Takeaways

  • MCAs are allowed in Texas, but they now fall under Texas Finance Code Chapter 398, effective September 1, 2025.
  • Covered providers and brokers must register with the Texas OCCC by December 31, 2026, and must give specified disclosures on offers under $1 million.
  • A confession-of-judgment clause in a covered contract is void and unenforceable, and automatic debiting is restricted.
  • The law governs how MCAs are offered and written. It does not lower what you owe on an existing advance.
  • If payments are crushing your cash flow, review the contract first, then talk to the funder about changes or request a no-obligation look at restructuring options.

Table of Contents

What a merchant cash advance is, and why the law treats it differently

An MCA is not a conventional loan. LendingTree describes it as an advance on future earnings: the provider buys a portion of your anticipated receivables for a fixed amount, collected from daily sales or sometimes as fixed daily withdrawals. A business loan, by contrast, is an upfront extension of credit repaid over time with financing charges.

Payment platforms that market MCAs define them the same way. Stripe’s marketing guidance calls an MCA a purchase of future receivables rather than a loan, and says it generally carries no absolute right to repayment, no minimum payments and no fixed term. Repayment moves with your payment-processing volume.

The cost side is where owners get hurt. NerdWallet reports that repayment periods may run from three to 18 months and that effective APRs may range from 40% to 350%. Those are market figures, not terms every contract carries, but they show why a flat fee that looks small can turn into a heavy daily draw. If you want to see your own number, our factor rate to APR calculator and factor rate guide show how to calculate total payback.

Because payments are tied to how the business performs, the Texas OCCC describes this kind of product as different from traditional commercial lending. Texas law calls it “commercial sales-based financing,” and that is the term you will see in the statute.

What a merchant cash advance is, and why the law treats it differently

Yes. Texas does not ban merchant cash advances. It regulates them. Chapter 398 of the Finance Code, added by HB 700 and effective September 1, 2025, sets rules for providers and brokers who offer commercial sales-based financing. A Governor’s Office memorandum confirms that the law identifies MCAs as a form of that financing.

The statute defines sales-based financing as repaid either as a percentage of your sales or revenue, or through fixed payments adjusted by a reconciliation process, according to the official statute text. That wording matters: many “fixed daily withdrawal” products that claim to be MCAs still fall under the definition.

The longer-running legal question is whether a given MCA is really a sale of receivables or a disguised loan. Hudson Cook’s industry overview explains that the distinction commonly turns on whether repayment is unconditional. A genuine receivables sale depends on your business actually generating the purchased receipts. An unconditional promise to repay may be treated as a loan, and labels do not control. That is a 2016 industry analysis and a matter for a Texas business attorney to apply to your specific contract, but it is the reason owners ask whether their agreement is “really” an MCA.

Are MCAs legal in Texas?

What HB 700 requires

Registration

Providers and brokers covered by Chapter 398 must register with the OCCC by December 31, 2026, and the statute requires registration before conducting business. The Office of Consumer Credit Commissioner administers, implements and enforces the chapter, according to the Governor’s Office memorandum.

The law reaches providers and brokers offering this financing over the internet to or for Texas recipients, so an out-of-state funder is not automatically outside it.

Disclosures on offers under $1 million

When a provider extends a specific offer under $1 million, it must make the disclosures the statute lists, subject to the chapter’s exemptions. In practice, you should see the key cost and repayment terms laid out before you sign, rather than discovering them in the fine print. Expect to see the amount funded, the amount you will repay, and how payments are collected and adjusted. Read the actual disclosure page against the contract itself, and ask questions if the two do not match.

Implementing rules

The Finance Commission of Texas adopted rules for Chapter 398 in 7 TAC Chapter 86, effective July 9, 2026. The Finance Commission may also adopt rules identifying prohibited unfair, deceptive or abusive practices, per the Governor’s Office memorandum. For the current text of the rules and the registration list, use the OCCC’s commercial sales-based finance page.

What the law bans or restricts

Two provisions matter most to an owner who is already in an advance or comparing offers:

Provision What it does
Section 398.055 A commercial sales-based financing contract containing a confession-of-judgment or similar provision is void and unenforceable
Section 398.056 Restricts automatic debiting

Both come from the official Chapter 398 text. A confession of judgment lets a funder obtain a court judgment against you without a normal lawsuit. If your contract was signed on or after the law took effect and is covered, that clause should not be enforceable. Older contracts, or contracts that fall under an exemption, may be different, so do not assume. Our page on the confession of judgment in an MCA agreement walks through what the clause says and what to look for.

The debiting restriction is worth reading closely in your own agreement. Daily ACH pulls are the mechanism that makes an MCA feel relentless, and how the contract authorizes them is exactly the kind of detail Chapter 398 now addresses.

What the law does not do

HB 700 is a transparency and registration law. It does not cap the price of an MCA, cancel an existing advance, or erase what you owe. A disclosure that shows a steep cost does not make the cost go away. That is why the practical work for a stressed owner is still reviewing the contract and negotiating, not waiting for the statute to fix the problem.

Reviewing your MCA agreement

Whether you are about to sign or already behind, pull the agreement and check these points:

  1. Purchase price and purchased amount. What did you receive, and what must you deliver? The ratio is the factor rate.
  2. Payment mechanics. Is it a true percentage of sales, or a fixed daily or weekly debit? Is there a reconciliation process, and how do you request it?
  3. Confession of judgment or similar language. In a covered Texas contract, this should be void under Chapter 398.
  4. Personal guarantee. Are you personally on the hook, and for what events?
  5. Default definition. What triggers default: a missed payment, switching bank accounts, taking another advance?
  6. Fees. Origination, ACH, and any renewal or “stacking” terms.
  7. Registration and disclosure. Is the provider or broker on the OCCC’s registration list, and did you receive the required disclosure before signing?

Our guide to reviewing contracts and preparing for MCA debt restructuring goes through the same checklist with the documents you will want to have ready.

What to do when payments strain your cash flow

The general guidance is consistent. LendingTree advises comparing offers and understanding full costs, and, if you are at risk of default, contacting the MCA company about restructuring or a temporary payment hold, or considering refinancing with a traditional loan. Here is how that looks in order:

  1. Act before you miss payments. Funders generally have more room to talk before a default than after one.
  2. Calculate what share of each day’s revenue the advance takes. Our article on repayments that take too much of every sale shows how.
  3. Ask the funder for a modified schedule or a pause. Put any agreement in writing.
  4. Weigh the larger options. Restructuring changes the payment terms; settlement negotiates a reduced payoff; consolidation combines several advances. Restructuring versus settlement compares them, and how to combine MCAs covers consolidation when you have more than one.
  5. Talk to a Texas business attorney if you have received a demand letter, a lawsuit, or notice of a lien or levy, or if you personally guaranteed the advance. A lawyer can tell you how Chapter 398, the contract language and any court filing apply to your facts.

If you are worried about what happens when payments stop, our page on what happens if you default on a merchant cash advance covers the typical sequence, and there is a separate explainer on whether an MCA company can freeze your business bank account.

Our perspective

We talk with owners whose advances started as a quick fix and became the biggest line in their daily cash flow. Many of them tell us the same thing: nobody explained how much of each sale was leaving until it was already hard to keep up.

Texas HB 700 is a real step forward for that reason. Registration and disclosures give you something to check before you sign. But a new law does not rewrite a contract you already have, and we believe the most useful thing an owner can do is understand their options early, while there is still room to negotiate.

That is why we built a quick, no-obligation assessment. We do not lend and we do not give legal advice. We connect you with independent providers that offer restructuring, consolidation or settlement, and we match each referral to your business’s circumstances rather than pushing a one-size-fits-all answer. Asking costs nothing, and you decide whether to go any further.

Danny

See your MCA payment options

If your advance is taking too much of every sale, you can submit a no-obligation inquiry to explore MCA payment options. We review your situation and connect you with independent providers that handle restructuring, consolidation or settlement. Inquiring is free, and you are not committed to anything.

Merchantprogramsolutions

Want to understand the approaches first? Read how MCA restructuring adjusts payment terms before you decide.

FAQ

Yes. Texas regulates MCAs as commercial sales-based financing under Finance Code Chapter 398, effective September 1, 2025. Providers and brokers must register with the OCCC and make required disclosures on offers under $1 million, subject to exemptions.

What is the Texas MCA law?

It is HB 700, which added Chapter 398 to the Texas Finance Code. It covers registration, disclosures, a ban on enforceable confession-of-judgment clauses and limits on automatic debiting. The OCCC enforces it, and rules in 7 TAC Chapter 86 took effect July 9, 2026.

Can a Texas MCA contract include a confession of judgment?

In a covered contract, a confession-of-judgment or similar provision is void and unenforceable under section 398.055. Check whether your contract is covered or exempt, and ask an attorney if a funder tries to rely on one.

What happens if I can’t pay my MCA?

The result depends on your contract, your guarantee and how the funder responds. Contact the funder early about restructuring or a temporary hold, and see an attorney if you receive a demand or lawsuit. Our default guide explains the usual steps.

Sources

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Talk Through Your Texas MCA
Discuss your Texas MCA payments and explore, through a no-obligation assessment, whether independent providers may offer restructuring options for your business.

Related reading

Merchant Program Solutions is not a lender, law firm, debt settlement provider, financial adviser, or government agency. Information on this page is general and should not replace legal, financial, tax, or accounting advice. Every business situation is different.