For years, businesses seeking quick access to capital have increasingly turned to financing arrangements that do not look exactly like traditional bank loans. One common example is the merchant cash advance, in which a business receives money upfront and agrees to repay the financing through a percentage of future sales or revenue.

Texas now specifically regulates many of these transactions.

Texas Finance Code Chapter 398, enacted in 2025, creates a regulatory framework for what the statute calls commercial sales-based financing. The law imposes disclosure requirements, registration requirements, restrictions on certain contract provisions and enforcement mechanisms that businesses providing this type of financing should understand.

The law is particularly important because it deals with commercial financing, rather than the consumer loans that are more commonly associated with state lending regulation.

What Is Commercial Sales-Based Financing in Texas?

Commercial sales-based financing generally involves financing provided for a business or commercial purpose in which repayment is tied in some manner to the recipient's sales or revenue.

The Texas Office of Consumer Credit Commissioner explains that, unlike a conventional commercial loan with fixed payments, commercial sales-based financing may require repayment as a percentage of sales or revenue or through payments that are periodically adjusted based on the business's performance. (Texas Consumer Credit)

That can include arrangements commonly described as merchant cash advances, or MCAs.

For example, imagine that a Texas restaurant receives $100,000 from a financing company. Instead of making ordinary monthly principal-and-interest payments, the restaurant agrees that the financing company will receive a portion of the restaurant's future revenue until an agreed repayment amount has been collected.

Chapter 398 potentially comes into play because the economic structure of the transaction is tied to the business's sales.

Texas Finance Code Chapter 398 Is Relatively New

The Texas Legislature enacted Chapter 398 through House Bill 700 during the 2025 legislative session. The statute became effective September 1, 2025. Texas regulators subsequently adopted implementing rules, which became effective July 9, 2026. (Texas Statutes)

The timing matters.

As of September 2026, Texas businesses operating in this industry are dealing with a regulatory framework that simply did not exist in this form a few years ago.

The Office of Consumer Credit Commissioner, or OCCC, is responsible for administering the registration system. OCCC began accepting commercial sales-based financing registrations through the Nationwide Multistate Licensing System (NMLS) on September 1, 2026. Providers and brokers subject to the law must register by December 31, 2026. (Texas Consumer Credit)

The $1 Million Disclosure Threshold

One of Chapter 398's most significant provisions concerns disclosures.

Texas Finance Code § 398.051 applies when a provider extends a specific offer of commercial sales-based financing of less than $1 millionto a Texas recipient.

The required disclosures are extensive. Among other things, the provider generally must disclose:

• the total amount of financing;
• the amount actually disbursed;
• the finance charge;
• the total repayment amount;
• the estimated repayment period;
• the amount and frequency of payments, or the method for calculating variable payments;
• other potential fees and charges;
• certain costs associated with early payoff or refinancing;
• collateral or security requirements; and
• applicable broker compensation.

The point is not merely to tell the business how much cash it will receive. The statutory framework is designed to make the economic cost and repayment structure of the transaction more visible before the transaction is finalized. (Texas Statutes)

The Recipient Must Sign the Disclosures

Chapter 398 goes one step further than simply requiring that disclosures exist.

Texas Finance Code § 398.052 provides that the provider must obtain the recipient's signature on the required disclosures “before finalizing the application for the commercial sales-based financing transaction.” (Justia Law)

That creates an important compliance issue.

A provider should not treat the disclosure form as paperwork that can simply be added to the file after the financing has already been approved and completed. The timing of the disclosure and signature matters.

The implementing regulations reinforce that concept by requiring the statutory disclosures before the recipient signs the financing agreement and requiring the disclosed terms to be accurate. (Texas Consumer Credit)

Providers and Brokers May Have to Register

Chapter 398 does not regulate only the company actually supplying the money.

It also reaches certain brokers involved in commercial sales-based financing.

OCCC's current guidance states that businesses requiring registration can apply through NMLS. A registration becomes active upon payment of the required initial registration fee, and registrations must subsequently be renewed. (Texas Consumer Credit)

This is significant for businesses operating as intermediaries.

A company that never directly advances a dollar may nevertheless need to determine whether its activities make it a regulated broker under Chapter 398.

Not Every Commercial Financing Transaction Is Covered

Chapter 398 should not be read as a general licensing statute covering every business loan made in Texas.

The statute contains exemptions, including exemptions applicable to certain financial institutions and certain categories of transactions. The statutory scheme also distinguishes commercial sales-based financing from ordinary consumer financing and other forms of commercial credit. (Texas Consumer Credit)

For lawyers and businesses, this means the first question is often not:

“Did the company comply with Chapter 398?”

The first question may instead be:

“Does Chapter 398 apply to this transaction at all?”

That can require examining the identity of the parties, the purpose of the financing, the amount involved, how repayment is calculated and the substance of the transaction rather than simply the label placed on the agreement.

Calling an agreement a “purchase,” “advance,” or “business funding agreement” does not necessarily answer the regulatory question.

Confessions of Judgment Are Restricted

Chapter 398 also addresses certain aggressive contractual remedies historically associated with merchant cash advance agreements.

The statute makes certain confession-of-judgment provisions and similar devices void and unenforceable. (Texas Consumer Credit)

A confession of judgment generally attempts to authorize entry of a judgment against a debtor without the ordinary litigation process that would otherwise precede a judgment.

For Texas commercial financing transactions subject to Chapter 398, simply inserting such a provision into a contract does not make it enforceable.

This illustrates a broader principle of contract law: sophisticated businesses generally have substantial freedom to contract, but contractual freedom ends where a statute declares a particular provision invalid.

Automatic Bank Debits Can Present Another Problem

Chapter 398 also regulates automatic withdrawals from a recipient's deposit account.

The statute restricts automatic debits unless specified security-interest requirements are satisfied. The implementing regulations explain that the provider or broker must hold a validly perfected, first-priority security interest in all of the recipient's accounts receivable to use the statutory exception. (Texas Consumer Credit)

This is a particularly technical area because it can bring Texas Finance Code compliance and Article 9 secured-transactions law into the same transaction.

It may not be enough for an agreement merely to state that the provider has a security interest. Whether a security interest has actually been created, perfected and given the required priority can involve a separate legal analysis.

That is precisely the kind of technical issue that can become important after a business relationship deteriorates.

Texas Also Prohibits Unfair, Deceptive, or Abusive Practices

The regulatory scheme goes beyond paperwork.

The implementing rules address unfair, deceptive and abusive acts and practices. Among the conduct identified by the rules are misleading statements in advertising or contracts, charging undisclosed fees, certain improper waivers of statutory rights, failing to maintain required records, and improperly characterizing consumer transactions as commercial transactions to evade regulatory requirements. (Texas Consumer Credit)

That last point deserves attention.

Whether financing is genuinely commercial can have regulatory consequences. A contractual label is not necessarily a magic phrase capable of converting a consumer transaction into a commercial one.

Violations Can Be Expensive

Chapter 398 contains a substantial civil-penalty provision.

Texas Finance Code § 398.101 states:

“A person who violates this chapter is subject to a civil penalty of $10,000 for each violation.” (Justia Law)

The words “for each violation” are important.

A compliance problem involving numerous transactions can therefore present considerably greater potential exposure than a single $10,000 penalty might initially suggest.

Providers and brokers should consequently consider compliance before using standardized agreements and disclosures across a large volume of transactions.

A defect repeated hundreds of times can be much more serious than a defect appearing in one isolated agreement.

Does Chapter 398 Give the Business Receiving Financing a Private Lawsuit?

Interestingly, no—not by itself.

Texas Finance Code § 398.102 expressly states that Chapter 398 does not create a private right of action based upon compliance or noncompliance with the chapter. (Justia Law)

That distinction is important.

The existence of a regulatory violation does not automatically mean that the recipient can file a lawsuit seeking damages under Chapter 398 itself.

However, that does not necessarily resolve every dispute between the parties. A transaction may implicate contractual claims, existing statutory remedies, secured-transactions issues, fraud or misrepresentation allegations, or other legal theories depending upon the particular facts.

The absence of a private right of action under Chapter 398 should therefore not be confused with a blanket immunity from civil litigation.

Does Texas Put a Maximum Interest Rate on Commercial Sales-Based Financing?

Chapter 398 is principally a disclosure and regulatory statute. It does not authorize the Finance Commission to create a maximum annual percentage rate, finance charge or fee specifically for commercial sales-based financing transactions. (Texas Statutes)

That does not mean every financing arrangement is necessarily immune from other Texas laws governing interest or usury.

Instead, it means Chapter 398 itself should not be treated as a statutory interest-rate cap.

Whether another provision of Texas law applies can depend on the legal characterization and structure of the particular transaction.

Why Chapter 398 Matters to Texas Businesses

Commercial sales-based financing occupies an unusual place between traditional commercial lending and alternative business financing.

For a business that needs cash immediately, an agreement tied to future revenue may appear straightforward. But the underlying contract can involve disclosure law, secured transactions, automatic withdrawals, broker regulation, registration requirements and potentially substantial regulatory penalties.

For financing companies, Chapter 398 means that commercial transactions cannot necessarily be approached on the assumption that sophisticated-business contracting is effectively unregulated.

For recipients, the statute provides considerably more transparency concerning the actual economics of the financing.

And for lawyers reviewing these agreements, the first task is often to determine exactly what the transaction legally is before determining which rules apply.

Conclusion

Texas Finance Code Chapter 398 represents an important change in Texas commercial-finance law.

Businesses providing or brokering merchant cash advances and other commercial sales-based financing should determine whether the new registration, disclosure and substantive requirements apply to their transactions. Businesses receiving financing should likewise understand that the documents governing these arrangements may involve considerably more than simply the amount advanced and the amount ultimately repaid.

A commercial financing agreement can appear simple while raising complicated questions involving the Texas Finance Code, contract law and secured-transactions law.

Because Chapter 398 is new and its implementing regulations became effective in 2026, businesses entering or enforcing these transactions should pay particular attention to the current statutory and regulatory requirements.

This article is for general informational purposes only and does not constitute legal advice. The application of Texas law depends on the facts and circumstances of each particular transaction. Businesses with questions concerning commercial financing agreements, merchant cash advances, lending disputes, or related contracts should consult a qualified Texas attorney.

At David C. Barsalou, Attorney at Law, PLLC, we help clients navigate business, family, tax, estate planning, and real estate matters ranging from document drafting to litigation with clarity and confidence. If you’d like guidance on your situation, schedule a consultation today. Call us at (713) 397-4678, email barsalou.law@gmail.com, or reach us through our Contact Page. We’re here to help you take the next step.