Revenue Based Financing

The Great Concession, How the MCA Product Effectively Proved It Was Right All Along

September 26, 2025
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moneyacrossthecountryThere was no greater irony than the State of Texas banning ACH debits from sales-based financing providers at the same time that the State of Washington was celebrating the coming age of sales-based financing. In Texas, for example, the motivation for curbing sales-based financing was built on the premise that “this type of financing has raised significant concerns about predatory lending and that state attorneys general as well as the Federal Trade Commission have obtained high-profile judgments against such financing for predatory practices.” Meanwhile, in Washington, the motivation for the state holding the opposite opinion was that sales-based financing “increases access to capital for small businesses in Washington state, particularly those that have been historically underserved or underbanked.”

How did these states reach the opposite conclusion?

There’s no caveat to how the Washington State program works. The State’s Department of Commerce partnered with Grow America and the operation is backed by a federal grant (SSBCI-21031-0048) to roll out and administer a revenue-based financing program as part of Washington’s State Small Business Credit Initiative. It’s sales-based financing or in this case revenue-based financing (which is the more common phrase these days). Grow America’s revenue-based financing program utters a very familiar phrase in its marketing.

“The months you generate more revenue, you pay a higher amount, when business is slower you pay less,” the company advertises.

This was at one time the signature calling card of a merchant cash advance, but now such features have been repackaged and rebranded into something similar but different, and everybody is doing them.

The Grow America program applies a 20% holdback on adjusted monthly revenue and requires a minimum monthly payment of $1,000 if the 20% holdback does not generate at least $1,000 for the month. Merchants can get approved for anywhere from $50,000 to $1 million. The product is marketed as having a 1.24 factor rate and an estimated 14.27% APR with a 3-year term. As industry participants are aware, increasing sales would translate into increasing payments, which means a rapidly paid off loan could potentially result in a final outcome APR in the triple digits, far and away from the “estimate.”

The irony is that the notable benefits of a similar product, merchant cash advances, which have no minimum monthly payments, no fixed term, and are not absolutely repayable, are eliminated when restructured in this way and presented as “revenue-based financing loans.” Revenue-based financing loans take the underlying structure of MCAs (payments tied to sales) and then strip away the benefits. However, when structured as loans, the argument often goes that they are likely to be cheaper, which may be true on average, but is not always true.

Indeed, Grow America leads specifically with price as for why its product, similar to its privately owned competitors, are the better option:

“There are a lot of online lenders offering revenue-based loans that promise instant approvals, but their terms are intentionally confusing, and the fees are high,” Grow America advertises. “Our lenders aren’t like that. They’re mission driven.”

In Texas, the author of the bill that banned debits from such financing providers “informed the [legislative] committee that commercial sales-based financing has become a popular financing option for small businesses desperate for credit and that, unlike traditional loans, this type of financing is repaid as a percentage of future sales or revenue.”

Indeed, it is very popular. The largest providers or brokers of such financing today whether structured as a purchase or loan, are household names like Amazon, Walmart, Shopify, Intuit, Stripe, DoorDash, PayPal, Square, GoDaddy, Wix, Squarespace and more. Some structure them as a purchase and call it a merchant cash advance and some structure it as a loan and call it revenue-based financing. In either case, payments are tied to the percentage of future sales or revenue.

In egregious cases of wrongdoing one way or another, such incidents have historically been a result of deceptive marketing or payments from a merchant exceeding the contracted amount. In New York, when transactions are structured as a purchase, courts generally look to make sure that the agreements have a reconciliation provision in the agreement, whether the agreement has a finite term, and whether there is any recourse should the merchant declare bankruptcy. Legally speaking, the products have become pretty well defined and understood in the court system.

Like Washington State, GoDaddy, which recently announced its new merchant cash advance program, markets its product in an almost identical fashion.

“If your sales go up, the MCA will be paid sooner; if the sales are slow, it’ll take longer,” GoDaddy says.

Same message.

Washington State requires merchants to make a minimum payment every month and a balloon payment if not fully repaid within 3 years. GoDaddy, by contrast, advertises no minimum payment amount, no set payment schedule, no penalties, and no late fees. One’s a loan, one’s a purchase.

While the best course of action is best left to the merchants, there appears to be a near-universal concession that the underlying nature of how merchant cash advance agreements were contemplated, payments tied to sales, made strong logical business sense all along. Washington State emphasizes this fact.

“We know that your business has its own needs and loans with fixed payment amounts may not be the best option for you,” they advertise. “The revenue-based financing fund offers loans with flexible payback terms so you can grow your business immediately and pay back your loan based on your varying revenue.”

Recent studies also now highlight the benefits of cash-flow-based underwriting.

In Sharpening the Focus: Using Cash-Flow Data to Underwrite Financially Constrained Businesses, “The paper finds that adding cash-flow information substantially increases the predictive signal of models that rely primarily on the business owners’ personal credit scores and firm characteristics.”

There’s also Square, the largest revenue-based financing provider in the US, that has explained why this system just works better. Square says that they can fund more businesses and have higher payment success rates than if they were to follow more conventional methods of underwriting and repayment.

“Square Loans addresses [the credit] gap by using near real-time business data to assess creditworthiness, evaluating metrics such as transaction volume and revenue patterns to offer short-term loans — with repayment on average in 8 months,” Square wrote in a White Paper. “This allows for a more accurate and timely understanding of a business’s capacity to borrow and repay. And loan repayments are higher during periods when business is stronger and reduced when sales are lower.”

Washington Fund

doordash capital

What’s the sentiment these days on payments tied to sales revenue? The market has spoken.

wix capital

Business Finance Companies on Inc 5000 List in 2025

August 12, 2025
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Here’s where small business finance companies rank on the Inc 5000 list for 2025 (and if we’ve missed you, email info@debanked.com):

Ranking Company 3-Year % Growth
15 Parafin 9594
206 businessloans.com 1862
669 Pinnacle Funding 626
831 SBG Funding 508
1215 Essential Funding Group 359
1240 Clara Capital 352
1417 Backd 306
1705 Kapitus 256
1719 Channel 255
1756 Fundible 248
2027 4 Pillar Funding 214
2117 Biz2Credit 203
2293 Byzfunder 187
2671 Critical Financing 156
3081 Lendzi 131
3226 eCapital 124
3508 ApplePie Capital 111
3545 SellersFi 109
3901 Splash Advance 95
3973 Fora Financial 92
3993 Capital Infusion 91
4076 Expansion Capital Group 88
4162 Shore Funding Solutions 85
4206 Direct Funding Now 83
4712 ROK Financial 63

See last year’s list here.

Heron Makes Big Splash in Small Business Finance Industry

July 15, 2025
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Heron DataHeron, a startup using AI to automate workflows, just raised a $16M Series A round. Already a well-known brand in the small business finance industry, the funds will be used to grow their presence, expand into adjacent verticals, and grow their go-to market & and engineering teams.

While Heron serves top tier clientele like insurance carriers and FDIC-insured banks, its technology can be utilized at almost any level.

“Our technology is built to serve funders of all sizes from industry leaders like Bitty, Forward, Vox, and CFG to sub-five person shops originating hundreds of thousands of dollars a month,” the company told deBanked. “If a team is receiving 25 or more submission documents per day, Heron can deliver immediate value by automating their document intake and reducing manual review time. Our platform scales to meet volume, and we often see smaller, fast-moving teams who want to scale submissions and originations without scaling headcount benefit the most from Heron.”

Heron noticed that small business lenders were employing teams of underwriting analysts that spend hours on repetitive intake work and created a process to streamline it within seconds. Consequently, they’ve seen that improving efficiencies in this market has had a positive impact on the economy overall.

“At Heron, we believe that SMB lending is the backbone of the American economy — it powers everything from local restaurants to trucking fleets,” the company said. “But outdated, document-heavy processes slow things down. Heron helps lenders move faster and smarter, so they can get capital to the businesses that need it most.”

FundKite, Aquamark Partner on Watermarking Submission Docs

June 17, 2025
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my dealAs more brokers rush to watermark submission documents to minimize the likelihood of their deals being backdoored, FundKite is codifying the trend into policy by partnering with Aquamark. Aquamark, as readers may recall, was recently spotlighted on deBanked for its defensive watermarking technology which enables brokers to stamp documents in a tamper-resistant manner, marking them as having originated from the broker. If these stamped documents end up in the hands of an unauthorized third party, the watermark reveals their original source. With watermarked submissions on the rise, FundKite will only accept them if they match the originating broker. The company will also encourage brokers to use Aquamark to protect their submissions if they aren’t already doing so.

“At FundKite, we take submissions very seriously and want to ensure that the documents we receive have been originated by the ISO submitting them and were not backdoored, which has been a major issue in the industry,” said Alex Shvarts, CEO of FundKite. “We encourage all our ISO partners to watermark their submissions for this reason. Aquamark provides a seamless and inexpensive process we tested and strongly recommend.”

“This partnership reflects a rapidly growing shift in the industry — brokers are fed up with deal theft, and they’re increasingly aware of how critical compliance will be over the next 12 to 24 months,” said Christina Duncan, Founder of Aquamark. “We’re grateful to partner with Alex at FundKite, who’s stepping up to address these challenges by reducing risk, building trust, and helping preserve the integrity of the space as it evolves.”

The Battle Against MCA in Texas

June 12, 2025
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David Roitblat is the founder and CEO of Better Accounting Solutions, an accounting firm based in New York City, and a leading authority in specialized accounting for merchant cash advance companies.To connect with David or schedule a call about working with Better Accounting Solutions, email david@betteraccountingsolutions.com.

texas ponderingTexas, a state associated with limited government intervention and freedom of business to operate and succeed in a capitalist society, stands at a crossroads.

Governor Greg Abbott has until June 22nd to decide whether to sign House Bill 700 into law—a decision that could fundamentally reshape how small businesses access capital in the Lone Star State. If he signs it, or simply lets the deadline pass without action, this sweeping legislation will take effect on September 1, 2025. The action will potentially cut off vital funding sources for thousands of Texas entrepreneurs, in a direct assault on the merchant cash advance industry that has been a lifeline for the people of his state.

The stakes couldn’t be higher. While supporters frame HB 700 as consumer protection, this bill targets sales-based financing—financial tools that have become lifelines for small businesses shut out of traditional bank lending.

Small business owners know the frustration of walking into a bank and walking out empty-handed all too well. Traditional lenders have tightened their belts, especially for newer businesses, minority-owned enterprises, and companies in industries deemed “risky.” When a restaurant owner needs quick capital to fix a broken freezer, or a contractor requires funds to purchase materials for a big job, they can’t wait weeks for a bank’s approval process. They need solutions now.

That’s where alternatives come in. Revenue-based financing provides capital based on future sales, not credit scores or lengthy financial histories. Yes, they can be more expensive than bank loans—but they’re also available when banks say no.

This financing drives business growth, job creation, and the health of Main Street. When small businesses can access capital quickly, they expand, hire employees, and strengthen their communities.

HB 700 goes far beyond simple disclosure requirements. While transparency is important—and most responsible providers already provide clear terms—this bill creates a regulatory maze that could price many providers out of the Texas market entirely.

The bill imposes sweeping new requirements that will fundamentally change how sales-based financing companies operate in Texas. Companies providing commercial sales-based financing must register with the Office of Consumer Credit Commissioner by December 31, 2026, including both direct providers and brokers, with mandatory annual renewals and fees.

For any financing under $1 million, sales-based financing providers must provide extensive disclosures covering everything from total financing amounts and disbursement details to payment schedules, additional fees, prepayment penalties, and even broker compensation arrangements. The operational restrictions go much deeper, voiding confession of judgment clauses entirely and requiring companies to obtain recipient signatures on all disclosures before finalizing any transaction.

Perhaps most problematic is the prohibition on automatic debiting of recipient accounts unless companies hold a “validly perfected first-priority security interest”—a legal standard that’s nearly impossible to meet in practice and effectively kills the streamlined payment processes that make revenue-based financing work for the funders, and by extension, the merchants.

The Finance Commission of Texas gains broad authority to identify and prohibit “unfair, deceptive, or abusive” practices, though interestingly, they cannot set maximum interest rates or fees. Violations carry steep civil penalties of $10,000 each, and the law applies to any provider offering services to Texas recipients via the Internet, regardless of where the company is physically located. These aren’t minor regulatory adjustments—they represent a complete overhaul that could drive legitimate capital providers out of the Texas market entirely.

This isn’t just bureaucratic red tape. It’s a fundamental misunderstanding of how modern business financing works. Revenue-based financing depends on streamlined payment processes tied to daily sales. Without this mechanism, the entire business model becomes unworkable.

If HB 700 becomes law, the consequences will ripple through Texas’s economy. Small businesses already struggling with inflation, labor shortages, and supply chain disruptions will lose access to flexible financing options. Rural businesses, minority-owned enterprises, and startups will be hit hardest—exactly the businesses Texas should be supporting.

The irony is stark. Texas has built its reputation as a business-friendly state, attracting companies fleeing overregulation in other states. HB 700 threatens to undermine that competitive advantage by making it harder for small businesses to access the capital they need to grow.

The voices of actual small business owners have been largely absent from this debate. Many don’t even know this legislation exists, despite its potential impact on their operations. Those who are aware express frustration that lawmakers are making decisions about their financing options without understanding their real-world needs.

Governor Abbott faces a clear choice. He can sign legislation that will likely drive responsible funders out of Texas, or he can recognize that small businesses need access to diverse financing options.

The goal should be protecting businesses from truly predatory practices while preserving their ability to access capital when traditional banks won’t help. That requires nuanced policy, not broad restrictions that treat all alternative finance providers as predators.

The battle against MCA regulation in Texas isn’t really about merchant cash advances—it’s about whether Texas will remain a place where small businesses can find the capital they need to thrive. Governor Abbott’s decision will determine not just the fate of HB 700, but the future of small business financing in Texas.

The countdown has begun. Texas small businesses are watching and waiting.

Tell Your Merchants to Act on The Texas Legislation

June 5, 2025
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Unbeknownst to many small businesses in Texas, revenue-based financing will be severely restricted in the state starting September 1, 2025 if the governor permits HB 700 to be finalized into law. For small businesses who might want to have a say on this matter, the Revenue Based Finance Coalition (RBFC) has provided information for merchants to conduct outreach to the appropriate parties. If you have merchants who want to weigh in before it’s too late, please share this link with them.

Govenor Abbott has between now and June 22nd to veto the legislation. If he signs or elects not to sign the bill by that date, the law will take effect on September 1, 2025.

Texas Passes Law Limiting Sales-Based Financing to 1st Positions Only (and more)

May 29, 2025
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texas shockThe 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, 2025
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The 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.