Texas Passes Law Limiting Sales-Based Financing to 1st Positions Only (and more)
May 29, 2025
The Texas House of Representatives has adopted the Senate’s controversial Commercial Sales-Based Financing amendment that prohibits a sales-based financing provider from automatically debiting any merchant in the state unless they are in a perfected 1st position. With the governor’s signature it will be law. As previously outlined, Texas had introduced its own commercial financing disclosure bill which included many extra requirements such as broker registration, state regulatory oversight, and now… a prohibition on any sales-based financing (with a particular aim at MCAs) where payments are debited that is not a true 1st position with a perfected security interest. It bears mentioning that 1st position here means 1st position out of any other claim altogether, not just other MCAs.
The passed bill, which is the Senate version on the right hand side of this document, includes the following language:
CERTAIN AUTOMATIC DEBITS PROHIBITED.
A provider or commercial sales-based financing broker may not establish a mechanism for automatically debiting a recipient’s deposit account unless the provider or broker holds a validly perfected security interest in the recipient’s account under Chapter 9, Business & Commerce Code, with a first priority against the claims of all other persons.
While the law specifies sales-based financing, broadly encompassing either a purchase transaction (MCA) or a loan where the payments ebb and flow with sales activity (revenue based finance loan), companies with a special bank relationship are exempt from the law. The exemption applies to: “a bank, out-of-state bank, bank holding company, credit union, federal credit union, out-of-state credit union, or any subsidiary or affiliate of those financial institutions.”
Though the House had until Monday to decide on adopting the Senate’s amendment, the 98 Yeas to the 23 Nays made it a done deal at the very end of yesterday’s legislative session. It now simply awaits the governor’s signature.
Texas Commercial Sales-Based Financing Bill Gets Last Minute ACH Ban Amendment
May 27, 2025The Commercial Sales-Based Financing bill that passed through the Texas House of Representatives two weeks ago has now also passed through the Senate, but with a rather controversial amendment. In the Senate version, passed yesterday, and viewable on the right hand side of this document, sales-based financing providers would not be allowed to automatically debit a merchant’s account unless they have a “validly perfected security interest in the recipient’s account under Chapter 9, Business & Commerce Code, with a first priority against the claims of all other persons.” That means any sales-based funding (like an MCA or revenue-based financing loan) would be prohibited from debiting merchants automatically unless they were in true first position. And not just a first position MCA, but first position on all arrangements the merchant has altogether. AND it would have to be perfected in accordance with this statute.
The Senate Amendment:
CERTAIN AUTOMATIC DEBITS PROHIBITED.
A provider or commercial sales-based financing broker may not establish a mechanism for automatically debiting a recipient’s deposit account unless the provider or broker holds a validly perfected security interest in the recipient’s account under Chapter 9, Business & Commerce Code, with a first priority against the claims of all other persons.
Since the main difference between what the Senate and House passed is that one sentence prohibiting automatic debits, they have until June 2nd to decide which version of the passed bill is final.
Sales-based financing is broad. While the term encompasses sales-based purchase transactions (MCAs), firms like Walmart and PayPal engage in loan-based sales-based financing. Both firms, for example, are registered sales-based financing providers in the state of Virginia.
The Texas Senate amendment language is new. It does not resemble anything passed in a state commercial financing disclosure law to date.
An estimated 10% of all sales-based financing in the US takes place with Texas-based businesses.
The State of Washington Launches a Revenue Based Financing Business
May 25, 2025
The State of Washington is getting in to the revenue based financing business. Coinciding with Broker Fair 2025 on May 19th, the Washington State Department of Commerce announced it was launching the Revenue-Based Financing Fund (RBF) loan program for small businesses. Its administered by Grow America.
“This is one of the most innovative loan programs we’ve ever launched,” said Commerce Director Joe Nguyễn. “It’s not a typical business loan. It’s a Pay-As-You-Earn loan that works with the reality of running a small business. Instead of fixed monthly payments, businesses repay based on what they actually make. So if sales slow down, payments stay low. If business picks up, payments adjust. It’s flexible, it’s fair, and it’s the kind of practical solution we need to support small businesses across Washington.”
$13M in funding has been allocated to this program so far. Funding works similar to a business loan from Square or PayPal where there is technically a term and minimum monthly payment required, but the repayment system is based on a percentage of sales, namely 20% of them.
“At Grow America, we’re excited to launch the Washington Revenue-Based Financing Fund,” said Daniel Marsh III, Grow America president. “This program offers flexible capital, empowering Washington’s small businesses, especially entrepreneurs, to scale operations and achieve sustainable success.”
“Revenue-based financing provides you with flexible upfront capital, and its payback terms are customized to your cash flow and fluctuate based on your revenue,” the marketing materials state. “It’s ideal for small businesses that are seasonal, may not have a consistent income, or require an alternative to a traditional loan.”
Texas on Pace to Pass MCA Bill With Broker Registration Requirement
May 13, 2025
The State of Texas is moving toward passing a “commercial sales-based financing” bill that would impact the merchant cash advance industry. Among the key details is an MCA broker registration requirement that would require brokers to get approved by the Office of Consumer Credit Commissioner (OCCC) in order to broker any MCAs to a merchant located in Texas. Brokers would be subject to OCCC oversight and the rules governing transactions with Texas-based merchants would apply regardless of where the broker themselves is located.
Furthermore, The Finance Commission of Texas would have the authority to adopt its own rules “to prohibit certain acts or practices by providers including acts or practices the commission considers unfair.”
The current iteration of the bill, which has already passed the House and is now in the hands of the Senate to confirm, can be found here.
Need a Bank to Fund MCAs? You Can’t Operate Without One
May 12, 2025
“I learned back in the early 2000s when merchant processors started to offer merchant cash advances, that was the first time I ever heard of MCA,” said Christian Sanchez, Relationship Manager for the National Deposits Group of Dime Private & Commercial Bank. Sanchez, who’s been in banking for 25 years, understands MCAs in their current iteration from a unique vantage point in the ecosystem. Dime, for example, is a full‑service commercial bank based in New York that today provides a variety of customers, including MCA funding companies, with services like checking accounts, wire access, and ACHs.
Sanchez worked with his first MCA client in 2021 and immersed himself in their business and the industry. When he got them onboarded and saw how well it worked out, he knew there was something there. By early 2024, he set out to find a place where he could meet many MCA funders at once and attended the deBanked CONNECT MIAMI conference that January. It was almost right afterward that he started a new role at Dime, and he has been actively looking to serve MCA companies ever since.
“Through the connections I made—I attended Broker Fair in New York last May and from there my access to the industry has been great and I continue to meet contacts, and one contact leads me to another,” Sanchez said.
It’s more than just a basic account that Dime is offering to MCA funders.
“Our platform is designed to give you the tools that you need to run your MCA funding company,” he said, “coming in from the standard online banking access, being able to view your accounts, run reports, extract information to your accounting system… We give you access to our ACH platform, which allows you to set up your payment collections, and based on how your deal is structured with the merchant, you can set those up with the different recurring schedules.”
Dime customers can also continue to use their own third‑party ACH processor if they choose.
Banking, believe it or not, can be one of the most overlooked considerations in running a funding company. A bank’s underwriting team has to understand the business, be comfortable with it, approve it, and be prepared to handle the flurry of activity—yet, even when they do, things may not always run smoothly. To that end, Sanchez said that even if someone already has an MCA banking relationship elsewhere and doesn’t want to switch to Dime, being fully onboarded with another bank as a backup is a smart plan. The time‑sensitivity surrounding things like wire deadlines and daily ACHs is critically important in the industry. It’s crucial not to wait until it’s too late for that Plan B, since onboarding and risk underwriting are neither instantaneous nor guaranteed.
“Obviously I would love to be the primary and having the biggest share,” Sanchez said. “But at the end of the day, it’s business. If I can be part of your business and work together, then I fulfill my need.”
Credit facilities, investors, and syndicates may also require an MCA funder to have a backup bank ready to go as a condition of working together. They might even require a Deposit Account Control Agreement (DACA), which Dime is equipped to put in place.
“[A DACA] is a tri‑party agreement between the MCA funder, the lender, and the bank,” Sanchez explained. “And what happens is this is a way for a lender to ensure that the MCA is doing what they say they were going to do…”
Dime customers need not be located in New York, but those who want to drop in on their banker can do so at the Midtown Manhattan branch or set up a meeting with Sanchez himself.
“A lot of times what I can assure you is, if you look for me, you can find me, whether it’s by phone or we might be meeting somewhere but I’m constantly available.”
True to that promise, Sanchez said he will once again attend Broker Fair in person on May 19 in New York City.
It’s important to note that, as a bank, there is still a rigorous underwriting process and not every company may be approved.
“It’s absolutely amazing to see how Dime is willing to work with MCAs,” he said. “We have a clear understanding of the industry, the risk that’s involved with it, but the bank has embraced it instead of running away.”
Shopify Continues to Grow its Merchant Funding Business
May 8, 2025“We continue to grow our capital business and have recently introduced several product innovations that give merchants more choice for how they manage their loans, and how they choose among various loan options,” said Jeff Hoffmeister, CFO of Shopify during the Q1 earnings call.
The company had ~$1.4B in business loan & merchant cash advance receivables on its balance sheet as of March 31, 2025. It purchased & originated $805M worth of business loans in Q1, putting it on pace to surpass the $3B total for all of 2024.
“Shopify Capital is a financing program that offers merchant cash advances and loans to eligible businesses based on the store’s location, history, use and interaction with the Shopify platform,” the company states. It is offered in the US, Australia, Canada, and the UK.
OppFi: Bitty performed well in Q1 2025
May 7, 2025“Our investment in Bitty continued to perform well in the first quarter of 2025,” said OppFi CEO Todd Schwartz during the earnings call. “The business continued to drive accretive profitability and cash flow to OppFi. We continue to see significant imbalance between supply and demand for working capital among small businesses. We are excited to be part of Bitty’s growth ahead.”
OppFi owns a 35% stake in Bitty.
During the Q&A, Schwartz reiterated that Bitty was well-positioned despite the uncertainty surrounding tariffs in the current environment.
Getting Backdoored? Put Your Mark on the Docs
April 30, 2025Christina Duncan was once working on a renewal as an MCA broker when things turned south. Her client suddenly received so many calls with offers for funding that they had to turn their phone off.
“[The client] eventually reached out to us via email and basically said, ‘Hey I don’t know what’s going on but these people are saying they’re with you and they have my bank statements. I’m really concerned,'” Duncan said.
Duncan’s renewal had been backdoored. It was hardly the first time, and she was hardly the only victim. As many in the industry often complain, it has become a growing trend in which a broker submits a client’s deal and it somehow slips out the back door into the hands of a third party. The broker then ends up competing on their own deal, or they lose out on it completely. And that’s how many brokers see it—as something that happened to them. But there’s also the business owner who is now left wondering how their data ended up in the wrong hands and what to do about it.
In the above example, Duncan tried to help the client learn how an unauthorized party came into possession of those bank statements, but she was simply hung up on and blocked. It was a dead end.
“So those are the situations that we encounter every day and it’s tough to navigate,” she said.
Born in San Jose, CA and based in San Francisco, Duncan has seen it all. She started in equipment financing more than 15 years ago and gradually shifted into brokering MCAs. When complaints about backdooring began to crop up, everyone had their own opinion on the cause.
“I’ve seen people get caught up on just trying to point the finger or use backdooring as an excuse for their lack of success,” Duncan said, “But the reality is that it is very real. I’m a part of the DailyFunder forum. I see people talking about it all the time but there just hasn’t really been an efficient way to deal with it.”
But then she came up with a solution: Aquamark, a defensive watermarking tool that differs from other tactics employed across the industry to reduce the risk of backdooring. It allows brokers to permanently stamp the documents as having originated from them.
With the assistance of AI and a small team, Duncan left the broker world behind to go full-time into developing the technology, which she said can be used on all the documents in the process.
“It’s not just the bank statements, it’s tax returns, your application,” Duncan said. “What’s happening is it’s someone who has access to these submissions, these packages, and it very well could be internal, someone on your team, it could be a lender and the lender doesn’t know that…”
So it’s not only a problem, but one that can happen at multiple levels in the process. The Aquamark tool, still in its early days but already being used by funders and brokers, can apply custom-branded watermarks onto PDF files with ease. On the one hand, she said, the tool had to be designed to prevent AI from removing the watermarks, and on the other hand it had to work with encrypted statements. When she solved both challenges, she knew she had something. Now, brokers simply upload their documents through the portal, and the platform returns them in seconds.
“By design, I built this in a way that it’s very lightweight and it’s self-service,” Duncan said. “You don’t really need me to do anything and more importantly we’re not storing anything. So essentially you’re uploading your documents and I’m giving it back to you. There’s no logs, there’s no history, none of that is happening behind the scenes.”
The company’s mission statement is a simple one: “Prevent Backdooring. Fund More Deals.”
As Duncan explains, lenders might not even know that a deal they’ve received has been backdoored because the submitting party doesn’t always make it obvious where they got it.
“It’s tough, especially in this environment with all the competition, cost to acquire customers are through the roof, and you lose that,” she said. “It sucks. And honestly it’s so frustrating because aside from it being [how brokers make their money], for the merchants it puts that bad taste in their mouth in the industry. And it’s very real. And so I just wanted to come out with something that—again, the MCA industry gave me a lot and this just feels like a way to give back, as cheesy as that sounds.”
