By: Jason Phillips

When Texas Governor Greg Abbott signed House Bill 700 into law on June 20, it sent shockwaves through the state’s small-business community. The legislation, which officially takes effect on September 1, has critical implications for thousands of small businesses reliant on sales-based financing such as merchant cash advances (MCAs).

“It affects our customers and all small businesses in Texas who have already entered into revenue-based financing agreements,” says Kunal Bhasin, founder and CEO of fintech platform 1West, known nationally for providing rapid, flexible capital to small businesses. “When these customers come back to refinance their agreements past September 1, they will come to find that the options they are generally accustomed to are no longer available for them.”

One of the most immediate impacts will be felt by businesses seeking refinancing for existing MCAs after September 1. Bhasin emphasizes, “The small business owners in Texas will have to look for alternative types of financing. Many will no longer qualify for credit at all. This will disproportionately affect the very small businesses under $1 million in the state of Texas.”

The new law introduces stringent disclosure requirements, broker registration rules, and notably, prohibits the controversial confession-of-judgment clauses, historically criticized for placing undue pressure on business owners. Additionally, it sets restrictions on automatic debits, creating further operational complexities for providers of financing.

Industry experts warn that the combination of increased regulatory oversight and restricted funding options could lead to tightened liquidity for Texas SMBs. Businesses dependent on rapid, flexible capital injections for growth initiatives, inventory management, or emergency cash flow solutions may need to rethink their financial strategies entirely.

The impact of the new law goes beyond financing. It also affects employment, local economic vitality, and the broader health of Texas’s entrepreneurial ecosystem. When business owners struggle to access financing they may pause hiring, reduce inventory or halt expansion – causing a potential ripple throughout the economy.

For businesses currently using MCAs, immediate action is essential. 1West, under Bhasin’s leadership, is proactively guiding customers through the transition. “At 1West, we have begun the process of notifying our customers of the new rule and changes that are set to take place on September 1,” Bhasin states. “We are working with our small business customers to ensure they understand the mechanics of the rule change. For those that are eligible, we are offering to refinance their existing financing into products that they will be able to continue with for the long term even after the rule change.”

What remains unclear is whether Texas’s bold move sets a precedent. “Hard to say if other states will follow suit at this time,” says Bhasin. “While regulation is welcomed and certainly needed in the small business financing space, I hope as other states roll out their regulations that they put thought into not affecting the access to credit that small businesses use as a lifeline.”

As the deadline approaches, the industry is closely watching the implementation and impact of HB 700. Clear, timely communication is essential. Financial gatekeepers and commercial bankers, in particular, will play critical roles in guiding their SMB clients through these legislative changes.

HB 700 isn’t just about compliance, it serves as a warning for small businesses in Texas who must adapt quickly. Industry experts have shared that the key for business owners to navigate this new law successfully will be implanting proactive communication, securing financial counsel, and exploring alternative funding solutions now.

With September 1 rapidly approaching, the message from industry experts is clear: prepare now to avoid disruptions later.

Disclaimer: This article is for informational purposes only and does not constitute financial or legal advice. Small business owners are encouraged to consult with financial advisors, attorneys, or other professionals to understand how Texas HB 700 may impact their financing options and business operations.