Texas Commercial Financing Disclosure Rules: What Small-Business Owners Need to Know

What Are Texas Commercial Financing Disclosure Rules?

In 2021, Texas enacted Senate Bill 1669, which created new disclosure requirements for commercial financing providers. The law is designed to give small-business owners clear, upfront information about the cost of financing before they agree to any deal. If you are a business owner in Texas looking for working capital, equipment financing, or a merchant cash advance, this law directly affects the offers you receive.

The rules apply to any commercial financing transaction of $500,000 or less. Providers must give you a disclosure document that includes the total amount of funds you will receive, the total repayment amount, the cost of financing (the difference between what you get and what you pay), and the annualized rate. This disclosure must be provided before you sign any contract or pay any fees.

Importantly, this is a disclosure law only. It does not cap interest rates, factor rates, or fees. It does not require any funder to approve your application. Its purpose is to make the terms transparent so you can compare offers from different providers on an apples-to-apples basis.

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Why Texas Passed This Law and What It Means for You

The Problem of Opaque Financing Terms

Before SB 1669, small-business owners often received offers with confusing terms. A merchant cash advance might be quoted with a factor rate of 1.2, but the actual cost expressed as an annual percentage could be much higher than a term loan with a stated interest rate. Without a standardized disclosure, comparing the two was nearly impossible. The Texas legislature heard from business owners who unknowingly agreed to high-cost financing because the true cost was hidden in fine print.

How the Law Protects Small Businesses

The law requires that all covered providers use a uniform disclosure table. This table must show:

• Total amount of commercial financing - the funds you actually receive.
• Total repayment amount - the total you will pay back, including all fees and charges.
• Cost of financing - the difference between the total repayment amount and the amount you receive.
• Annualized rate - a percentage that reflects the cost of financing over a one-year period, similar to an APR but calculated according to the law's rules.

With this table, you can see at a glance that a $10,000 merchant cash advance with a factor rate of 1.2 and a repayment term of six months might have an annualized rate of 40%, while a $10,000 term loan with a 15% interest rate and six-month term might show a lower annualized rate. The disclosure makes these differences clear.

Which Types of Financing Are Covered?

The Texas disclosure rules apply to a broad range of commercial financing products, including:

• Merchant cash advances - where you receive a lump sum in exchange for a percentage of future sales.
• Online term loans - short- or medium-term loans from non-bank lenders.
• Equipment financing - loans or leases used to purchase equipment.
• Invoice factoring or receivables financing - selling your unpaid invoices for immediate cash.
• Business lines of credit - revolving credit facilities from non-bank providers.

However, the law specifically exempts banks, credit unions, and savings and loan associations. It also does not apply to transactions over $500,000, or to financing secured by real property (like a mortgage on your business property). If you are working directly with a traditional bank, you will not receive this disclosure, though many banks voluntarily provide similar information.

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What to Expect When You Apply for Financing in Texas

The Disclosure Timeline

When you submit an application or request a quote from a covered provider, they must provide the disclosure document before you become obligated under the contract. In practice, you will typically receive the disclosure at the same time as the loan agreement or funding offer. You should review it carefully before signing anything.

Understanding the Annualized Rate

The annualized rate is not the same as an APR, though it is similar. The law provides a formula for calculating this rate that accounts for the time value of money and the repayment schedule. For a simple term loan, the annualized rate will closely match the APR. For products like merchant cash advances, where payments are a percentage of daily sales, the annualized rate can be higher because the repayment period is shorter and the cost is front-loaded. For example, a $10,000 MCA with a factor rate of 1.25 and a repayment term of 4 months might have an annualized rate of 75%, while a 12-month term loan with a 20% interest rate might show an annualized rate of 20%. The disclosure lets you see that difference.

What If the Offer Changes?

If the provider changes the terms after providing the initial disclosure-for example, if your credit profile changes and they offer a different factor rate-they must provide a new disclosure with the updated terms. You are never locked in until you sign the final agreement.

How to Qualify for Commercial Financing in Texas

Qualification requirements vary by provider and product, but most non-bank funders consider the following factors:

• Time in business - typically at least 6 months to 1 year.
• Monthly revenue - often a minimum of $5,000 to $10,000 per month.
• Personal credit score - while some funders work with scores below 600, better scores usually mean better terms.
• Business bank account - you need an active account where deposits are made.
• Industry - some industries are considered higher risk and may face stricter requirements.

Because the law only requires disclosure, not any minimum standard, you may still receive offers even if your credit is less than perfect. However, the disclosure will help you see the true cost, which might be higher than you expect. It is always wise to compare multiple offers before committing.

Practical Tips for Using the Disclosure to Your Advantage

Read the Table, Not Just the Headlines

Some providers may advertise a low factor rate or a low monthly payment, but the disclosure table will show the total repayment amount and the annualized rate. Focus on the total cost of financing and the annualized rate to understand what you are really paying.

Compare Multiple Offers Side by Side

Because the disclosure is standardized, you can lay out two or three offers and compare the total repayment amounts and annualized rates directly. This is one of the most powerful benefits of the law. For instance, Offer A might have a lower monthly payment but a higher total repayment amount due to a longer term, while Offer B might have a higher payment but a lower total cost.

Ask Questions Before Signing

If the disclosure shows a cost that seems high, ask the provider to explain how the annualized rate was calculated. Some providers may be willing to adjust terms, especially if you have strong revenue or a good payment history. Remember, the disclosure is not the final contract-it is a tool for negotiation.

Use a Free Matching Service to Compare Options

Because the disclosure rules apply only to covered providers, you may still need to shop around to find the best offer. A free service that matches you with vetted funding partners can help you receive multiple disclosures from different providers, making it easier to compare. This service does not charge you anything and does not make credit decisions-it simply connects you with funders who will then provide the required disclosures.

Common Mistakes to Avoid

• Ignoring the annualized rate - Some owners focus only on the factor rate or the monthly payment. The annualized rate gives you a more complete picture of the cost over time.
• Assuming all disclosures are the same - While the format is standardized, the underlying terms can vary widely. Always read the fine print for any additional fees, prepayment penalties, or conditions.
• Not checking whether the provider is exempt - If you are dealing with a bank or credit union, they are not required to provide this disclosure. Ask them for a similar breakdown of costs.
• Signing without understanding the repayment structure - For MCAs, payments are often taken daily or weekly as a percentage of sales. Make sure you understand how that will affect your cash flow.
• Forgetting that disclosure does not mean approval - The law does not guarantee you will get funded. It only ensures that if you are offered financing, you see the true cost before you agree.

What the Law Does Not Do

It is important to know the limits of SB 1669. The law does not:

• Set maximum interest rates, factor rates, or fees.
• Require any funder to offer you financing.
• Apply to all types of financing (banks, credit unions, and large transactions are exempt).
• Provide a cooling-off period or right of rescission after you sign.
• Create a private right of action for violations (enforcement is handled by the Texas Attorney General).

Because the law does not regulate rates, you may still encounter high-cost offers. Your best protection is to use the disclosure to compare and to work with a service that connects you with transparent, vetted funding partners.

Final Thoughts

Texas' commercial financing disclosure rules are a significant step toward transparency for small-business owners. By requiring standardized disclosures for most non-bank financing under $500,000, the law empowers you to make informed decisions. When you receive an offer, take the time to review the disclosure table, compare it with other offers, and ask questions if anything is unclear. A free matching service can help you gather multiple offers quickly, so you can see which one fits your business best. Remember, the goal is not just to get funding-it is to get funding on terms that work for your business.