Texas MCA Shake-Up: How HB 700 Is Impacting Small Business Funding in 2026
Texas small businesses are facing a funding crisis that most owners never saw coming.
On September 1, 2025, House Bill 700 took effect — sweeping legislation that fundamentally changed how merchant cash advances operate in Texas. Since then, the majority of MCA providers have paused or stopped funding Texas businesses entirely. And thousands of restaurants, retailers, contractors, and service businesses that depended on MCA funding for daily operations are now scrambling for alternatives.
⚠️ Important notice: Hybrid Funder does not currently fund merchants in Texas. We are monitoring the regulatory situation closely and will update this notice when our Texas funding resumes.
If you are a Texas business owner who uses or has used MCA funding — or if you are looking for working capital right now — this guide covers exactly what changed, what it means for your business, and what funding options are still available in 2026.
⚖️ WHAT IS TEXAS HB 700 AND WHAT DOES IT REQUIRE?
House Bill 700 was signed by Governor Greg Abbott in June 2025 and took effect September 1, 2025. The law regulates what it calls "commercial sales-based financing" — the legal category that covers merchant cash advances, revenue-based financing, and similar products.
The bill was framed as a consumer protection measure designed to bring transparency to the MCA industry in Texas. In practice, its requirements have made it extremely difficult for most MCA providers to operate in the state at all.
Here is what HB 700 requires:
✅ Registration: Every MCA provider and broker offering sales-based financing in Texas must register with the Texas Office of Consumer Credit Commissioner (OCCC) and renew that registration annually.
✅ Mandatory disclosures: For deals under $1 million, providers must disclose the total amount financed, total repayment amount, payment frequency, estimated APR, all fees, collateral requirements, and broker compensation — all before signing.
✅ The ACH restriction — the rule that broke the industry: HB 700 prohibits automatic debits from merchant accounts unless the provider holds a legally perfected, first-priority security interest in those funds.
That last requirement is the one that effectively shut down most MCA operations in Texas. The entire repayment model of a traditional merchant cash advance is built on automatic daily or weekly ACH withdrawals. Requiring a first-priority security interest to do that adds complex legal requirements that most MCA providers cannot satisfy quickly or cost-effectively — especially for smaller advance amounts.
The penalties for non-compliance are steep: up to $10,000 per violation with a maximum of $100,000 total. Most providers decided the compliance burden was not worth it and simply stopped funding Texas businesses.
📉 WHAT HAPPENED AFTER SEPTEMBER 1, 2025
The impact was immediate and significant.
Most major MCA funders paused Texas operations entirely on or before September 1, 2025. This was not a gradual wind-down — it was an abrupt halt. Businesses that had relied on MCA funding for years suddenly found their applications declined or their usual providers not responding.
The businesses hit hardest were exactly the ones MCA funding was designed to serve:
* Restaurants managing tight daily cash flow between food costs and revenue
* Retail businesses bridging seasonal inventory gaps
* Contractors waiting on project payments while carrying payroll
* Service businesses covering expenses between client billing cycles
* Trucking companies managing fuel and repair costs
* Salons and spas covering slow-season cash flow
These businesses were not bad actors. They were using a legal, widely available financial product that had been operating in Texas for years — and then it was gone almost overnight.
As of early 2026, the situation in Texas remains unsettled. Some providers have begun the registration process with the OCCC. A small number have restructured their repayment models to comply with the first-priority lien requirement. But the majority of MCA volume that previously flowed into Texas has not returned.
🔍 WHY THE ACH RESTRICTION IS THE REAL PROBLEM
To understand why HB 700 hit so hard, you need to understand how MCA repayment actually works.
A traditional merchant cash advance is repaid through one of two methods:
Method 1 — Fixed daily ACH: The provider withdraws a fixed dollar amount from your business bank account every business day until the full payback amount is collected. This is the most common repayment structure.
Method 2 — Split withholding: A percentage of your daily credit card processing volume is withheld before it reaches your account. Less common today but still used by some providers.
Both methods involve automatic withdrawal from your accounts. HB 700 says you cannot use Method 1 — fixed daily ACH — unless you hold a legally perfected, first-priority security interest in the merchant's bank account or receivables.
Getting a first-priority security interest is not simple. It requires filing specific legal documents, verifying no prior liens exist in that position, and navigating UCC law in ways that add time, cost, and complexity to every deal. For a $25,000 MCA that funds in 48 hours, adding that legal process is often not economically viable.
The result: the core repayment mechanism that makes MCAs fast and accessible is now legally restricted in Texas.
💸 WHAT FUNDING OPTIONS ARE STILL AVAILABLE FOR TEXAS BUSINESSES
Texas businesses are not without options. Here is what is still available in 2026.
1. 🏛️ SBA Loans — Fully Available
SBA loans are federal programs and are completely unaffected by HB 700. The SBA 7(a) program, SBA 504, and SBA Express all continue to operate normally in Texas.
For established Texas businesses with 650+ credit, 2+ years in business, and solid financials, SBA loans remain the most affordable working capital option — with rates of 10.5% to 13.5% and terms of 7 to 25 years.
The downside: SBA loans take 3 to 8 weeks to fund and require extensive documentation. They are not the right solution if you need capital this week.
2. 🚛 Equipment Financing — Fully Available
Equipment financing is not affected by HB 700 because it is secured by the equipment itself — not by future receivables or ACH withdrawals from a merchant account. Texas businesses can still finance trucks, machinery, restaurant equipment, medical devices, and any other business equipment through traditional equipment lenders.
Terms: 24 to 84 months. Rates: 6% to 20% APR. Funding: typically 3 to 7 business days.
3. 💳 Business Lines of Credit — Available for Qualified Businesses
Traditional revolving lines of credit from banks, credit unions, and online lenders are not impacted by HB 700. These are loan products — not sales-based financing — and operate under different regulatory frameworks.
Online lenders typically want 1+ year in business, $100,000+ in annual revenue, and a 600+ credit score. Funding can happen within a few days for online lenders.
4. 📄 Invoice Factoring — Available for B2B Businesses
Invoice factoring involves selling your outstanding invoices to a factoring company for immediate cash. It is not a loan and does not involve ACH withdrawals from your bank account — making it fully available in Texas regardless of HB 700.
Factoring fees typically run 2% to 5% per invoice. Ideal for Texas businesses working with brokers, contractors, or any customer on net 30 to net 60 payment terms.
5. 🏦 Traditional Bank Term Loans — Available for Qualified Businesses
Standard term loans from banks and credit unions are not sales-based financing and are not covered by HB 700. Requirements are stricter — typically 650+ credit, 2+ years in business, and full financial documentation — but rates are competitive at 7% to 15% APR.
📊 HOW HB 700 COMPARES TO OTHER STATE MCA LAWS
Texas is not the first state to regulate MCAs — but HB 700 is widely considered the most disruptive MCA law enacted by any state to date.
New York: Passed commercial financing disclosure laws in 2022 requiring APR disclosure and standardized cost disclosures. Did not restrict ACH repayment. Most MCA providers continue to operate normally in New York.
California: Similar disclosure requirements to New York — total cost, APR, and payment disclosures required. No ACH restriction. Providers continue to operate.
Utah, Virginia, Florida, Georgia, Kansas: Various disclosure requirements. No ACH restrictions. MCA funding continues normally in these states.
Texas HB 700: Goes significantly further than any other state by restricting the ACH repayment mechanism itself — not just requiring disclosure. This is why the impact in Texas has been so much more severe than in other regulated states.
🔮 WHAT HAPPENS NEXT IN TEXAS
The MCA industry is actively monitoring and responding to HB 700 in several ways.
Some providers are pursuing OCCC registration and working with legal counsel to restructure their products to comply with the first-priority lien requirement. If they succeed, MCA-like products may return to Texas — but they will look and operate differently than traditional MCAs.
Industry trade groups are engaged with Texas lawmakers and regulators to clarify implementation rules and potentially seek amendments to the most disruptive provisions. The rulemaking process at the OCCC is ongoing and guidance is expected to evolve through 2026.
What this means for Texas business owners: the situation is not permanent, but it is not resolved quickly either. Planning for alternative funding sources now — rather than waiting for MCA funding to return — is the prudent approach.
❓ FREQUENTLY ASKED QUESTIONS
Is MCA funding completely illegal in Texas now?
No — merchant cash advances are not illegal in Texas. HB 700 regulates how they can be offered and repaid. The law requires registration, mandatory disclosures, and — critically — a first-priority security interest before ACH withdrawals can be made. Most providers have paused operations because compliance is complex and costly, not because MCAs are banned.
Can I still get MCA funding if my business is in Texas?
Currently most MCA providers, including Hybrid Funder, are not funding Texas merchants while the regulatory situation is being resolved. Some providers are working through the compliance process and may resume funding in 2026. Check directly with your provider for their current Texas status.
Does HB 700 affect existing MCA agreements?
HB 700 applies to new agreements entered into on or after September 1, 2025. Existing agreements signed before that date are generally not retroactively affected, though how providers collect on existing agreements may be impacted.
What is the OCCC and what role does it play?
The Texas Office of Consumer Credit Commissioner is the state agency responsible for implementing and enforcing HB 700. Providers who want to offer sales-based financing in Texas must register with the OCCC, pay registration fees, and comply with ongoing reporting requirements.
Why did most MCA providers stop funding Texas instead of just complying?
The compliance cost and complexity — particularly obtaining a legally perfected, first-priority security interest for every deal — makes the traditional MCA model uneconomical for most providers at standard deal sizes. Registering with the OCCC, restructuring repayment models, and navigating UCC law for every $20,000 to $50,000 advance is not financially viable for most providers without significant structural changes.
Will MCA funding return to Texas?
Likely yes, in some form — but the timeline is uncertain and the product may look different. Some providers are actively working toward compliance. Industry groups are engaging with regulators on implementation guidance. Business owners should monitor the situation but plan for alternative funding in the meantime.
I am a Texas business owner who needs funding now. What should I do?
Explore the alternatives outlined in this guide — SBA loans for established businesses with strong credit, equipment financing for asset purchases, invoice factoring for B2B businesses with outstanding invoices, and traditional term loans or lines of credit for qualified borrowers. Contact Hybrid Funder to discuss which options may be available for your specific situation.
⚠️ HYBRID FUNDER'S CURRENT POSITION ON TEXAS FUNDING
Hybrid Funder does not currently fund merchants in Texas.
This decision reflects our commitment to operating in full compliance with state regulations. HB 700's requirements — particularly the first-priority security interest requirement for ACH repayment — make it impossible for us to offer our standard MCA products in Texas without significant restructuring that we have not yet completed.
We are actively monitoring the regulatory situation, tracking OCCC rulemaking guidance, and evaluating paths to resume Texas funding in a compliant manner. We will update our Texas business community as soon as our status changes.
If you are a Texas-based business owner looking for funding options, we encourage you to contact us directly. While we cannot offer MCA products in Texas at this time, we may be able to help you explore SBA financing, equipment financing, or other compliant alternatives depending on your situation.
📞 (347) 201-2367
🚀 FOR BUSINESSES OUTSIDE TEXAS — WE ARE FULLY OPERATIONAL
If your business is located outside of Texas, Hybrid Funder is fully operational and actively funding businesses across all other 49 states.
What you can expect:
* MCA funding from $5,000 to $2 million+ depending on revenue
* Fast approvals — most options fund within 24 to 48 hours
* Options for all credit profiles including challenged credit
* SBA and equipment financing for qualified borrowers
* No hard credit pull on initial review
👉 Apply in 60 seconds: www.hybridfunder.com/applynow
📞 (347) 201-2367
Disclaimer: Hybrid Funder LLC is a business financing advisory and referral service. We are not a bank or direct lender. All funding products are offered and underwritten by independent third-party providers and are subject to underwriting, eligibility, and applicable state and federal regulations. Hybrid Funder does not currently offer merchant cash advance products in Texas due to HB 700 regulatory requirements. This post is for informational purposes only and does not constitute legal or financial advice. Texas business owners with questions about HB 700 compliance should consult a qualified legal advisor. Updated April 2026.
