What Loan Brokers Need to Understand About the Sales-Based Financing ACH Prohibition Law
The recent passage of Texas House Bill (HB) 700 marks a pivotal change in the sales-based financing landscape, affecting how funding providers and brokers operate within the state. Signed into law by Governor Greg Abbott on June 20, 2025, the legislation introduces sweeping restrictions, including banning certain ACH (Automated Clearing House) debits. Commercial loan brokers working with Texas-based businesses must now adapt to this law as it takes effect on September 1, 2025.
Below, we’ll explore what this law entails and break down the potential implications for loan brokers focused on sales-based financing, merchant cash advances (MCAs), and revenue-based finance loans.
What is HB 700?
HB 700 is designed to regulate commercial sales-based financing transactions in Texas. Simply put, it prohibits providers and brokers of sales-based financing from debiting a Texas merchant’s bank account automatically unless specific conditions are met.
The key provisions include the following:
- First-Position Priority Rule: Before initiating ACH debits, providers or brokers must hold a perfected, first-priority security interest in the merchant’s deposit account under Chapter 9 of the Texas Business & Commerce Code.
- Registration Requirements: Providers and brokers engaging in sales-based financing must now register with the Texas Office of Consumer Credit Commissioner by December 31, 2026.
- Disclosure Obligations: Financing providers offering less than $1 million must disclose details regarding financing terms, repayment amounts, associated fees, and collateral requirements before proceeding with a transaction.
These rules apply regardless of whether the financing provider is physically located in Texas, as long as the recipient merchant operates within the state.
Impact on Sales-Based Financing
1. A De Facto Ban on ACH Debits
The centerpiece of HB 700 is the limitation on ACH debits. For many sales-based financing models, automatic debits have been foundational to managing payment collection efficiently. Under the new rules, only providers with a first-priority claim to the merchant’s deposit account can facilitate ACH debits.
However, this creates substantial practical challenges:
- Existing Liens Conflict: Many merchants already have extensive liens on their accounts, often blanket liens placed by other creditors. These complicate or outright block the ability of RBF (Revenue-Based Financing) providers to secure a first-priority position.
- Unaccounted Liens: Sometimes, Uniform Commercial Code (UCC) filings for liens may remain active even after obligations are paid off, further complicating compliance.
Because of these issues, HB 700 is being viewed as a near-total prohibition on ACH debits for sales-based financing providers without first-lien access, limiting available funding methods for Texas-based merchants.
2. Challenges for Brokers and Providers
The legislation places brokers and providers under closer regulatory scrutiny. Compliance with the law requires a thorough understanding of registration processes, mandated disclosures, and documentation. For brokers, this involves coordinating between merchants and financing entities to ensure that financing terms align with the new legal framework.
Broader Implications for Commercial Loan Brokers
1. A Potential Shift in Financing Models
The Texas law will likely force a shift in how sales-based financing services are structured. Instead of ACH-based payments, new mechanisms like invoiced repayments or direct authorization frameworks may gain traction to avoid compliance hurdles.
If structured correctly, this could offer opportunities for brokers who innovate within the confluence of traditional financing and new client needs.
2. Ripple Effect Across States
Laws like HB 700 may create ripple effects across other states as legislative bodies review the costs and benefits of regulating alternative financing models. Commercial loan brokers operating in multiple regions should watch for similar measures in their areas.
How Loan Brokers Can Stay Ahead
1. Expand Offerings Beyond Sales-Based Financing
Given the restrictions on sales-based financing in Texas, brokers should consider diversifying their offerings to include other funding solutions. For example, true bank loans, receivables factoring, and revolving lines of credit remain viable options under these restrictions.
One such option, the Bankroll Revolving Line of Credit by ARF Financial, offers businesses a flexible line of credit with no penalties for early repayment. Features like fixed terms and unlimited drawdown make it an attractive alternative for brokers needing to pivot away from sales-based financing.
2. Enhance Transparency and Communication With Clients
With new disclosure requirements in effect, transparency will be essential to ensure brokers maintain compliance and avoid legal risks. Educate clients on the implications of sales-based financing regulations and work collaboratively to tailor solutions that meet their business needs while staying within the law.
3. Stay Updated on Legislation
Familiarizing yourself with every aspect of HB 700 is only the beginning. Ongoing monitoring of government updates and legal interpretations will be critical in ensuring your operations remain fully compliant. Subscribe to industry newsletters, collaborate with legal counsel, and engage with associations like the International Factoring Association for insights.
Looking Ahead for the Sales-Based Financing Sector
The introduction of HB 700 undoubtedly presents challenges, but it also opens the door for innovation in financing methods. For resourceful loan brokers, this evolution in the regulatory landscape is an opportunity to explore untapped markets and alternative funding solutions.
By aligning with compliance standards and diversifying funding portfolios, brokers can continue to position themselves as trusted advisors to merchants and entrepreneurs navigating these changes.
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