Texas Just Declared War on Merchant Cash Advances

Texas isn’t exactly known for heavy-handed regulation.

But on June 17, 2025, Governor Greg Abbott signed H.B. 700 into law—marking the most aggressive crackdown we’ve seen on merchant cash advances (MCAs) and broker-driven fintech funding.

And if you’re a business owner—or a broker still clinging to the old way of doing things—you should pay attention. This doesn’t just affect Texas. It might signal where the entire industry is headed.

What the Law Says (and Why It Matters)

Texas H.B. 700 goes into effect September 1, 2025, and includes four big changes:

No automatic debits from a business’s bank account unless the funder holds a first-position UCC lien on that account
Confessions of judgment are banned
Funders must clearly disclose total cost and estimated APR
Brokers must register with the state—and must disclose exactly how much they’re getting paid

That first part? Huge implications for business funders looking to operate in the 2nd most populated state in the country. That last part? It’s a Death Star blow for shady brokers and fly-by-night cash advance providers trying to do business in the Lone Star State.

The Hidden Commission Era Is Over (in Texas, at Least)

Most MCA and fintech deals involve undisclosed commissions tacked on by brokers—often 10, 15, or even 25 points—without the borrower ever seeing it.

This law changes that. Brokers in Texas will now be forced to tell you, in writing, exactly what they’re making.

If you’re wondering how big of a deal that is, consider this:
There are brokers who literally won’t be able to operate under these rules.
They depend on hiding their cut. They have no real underwriting knowledge. They don’t explain structure. They just email you a deal and hope you sign before asking too many questions.

That model just died in Texas.

What About Fintech Lenders?

Let’s be clear—this isn’t just about brokers and MCAs.

Many well-known fintech lenders like:

…do file UCC liens, but they’ve traditionally been comfortable operating behind existing liens—like banks, SBA lenders, factoring companies, or even old fintech deals that haven’t been formally terminated.

That’s no longer an option.

Under H.B. 700, to use automatic debits (the lifeblood of most MCA-like products), you must hold a first-position lien on the actual deposit account. This raises serious friction:

Funding behind a bank? Likely impossible.
Borrower’s previous loan paid off but lien still open? Problem.
Unbanked or lightly documented merchants? Expect longer diligence and more hoops.

It won’t just shrink deal flow—it will force a total restructuring of how these lenders operate.

Embedded Finance Platforms: Also Caught in the Crossfire

Even the smoother, sleeker funders—like:

…often fund into and debit from outside accounts. To comply, they’ll either need to:

Force borrowers to use proprietary accounts (like Square Checking), or
Secure first-position UCC filings on the external accounts they debit from.

That’s a big lift—even for sophisticated players.

Why This May Actually Help Good Lenders

Here’s the twist: This might be the best thing to happen to well-run fintech lenders.

Many have long relied on brokers for deal flow, despite the risks and the markups. Now, Texas is doing the filtering for them—cutting out bad brokers, improving transparency, and nudging borrowers to go direct.

If more states follow suit, lenders that:

Price fairly
Underwrite responsibly
Communicate directly

…will come out ahead.

Why Texas Matters So Much

This isn’t just any state. Texas leads the nation in business formation and economic growth:

When Texas starts tightening the screws on MCA-style funding?
Other states—and lenders—take notice.

? SBA Already Sent the Same Message

Just weeks before H.B. 700 passed, the SBA updated its guidelines to ban SBA loan proceeds from being used to refinance MCA or “MCA-like” debt.

Their reasoning?

It’s not a sound business purpose. Full stop.

If Texas and the SBA both say your funding structure is a problem… it’s probably a problem.

✅ Want a Second Opinion Before You Sign?

That’s why we built Diogenes.

We’re not brokers. We don’t collect commissions. We don’t care what deal you pick.

We just want to help you avoid the traps that lenders and brokers don’t talk about.