Texas Finance Code chapter 398: sales-based financing disclosure, broker registration, and no confessions of judgment

Texas voided confession-of-judgment clauses in sales-based financing contracts and told the Finance Commission it may not set a maximum rate. Those two decisions, taken together, describe the Texas approach: police the process, leave the price alone.

What HB 700 did

House Bill 700, passed in the 89th Regular Session, took effect on 1 September 2025 and created a new chapter in the Texas Finance Code — chapter 398, Commercial Sales-Based Financing. The Office of Consumer Credit Commissioner administers it, and the rules sit in Title 7, chapter 86, subchapter C of the Texas Administrative Code.

Sales-based financing here means financing repaid either as a percentage of a business's sales or revenue, or through payments that are periodically adjusted based on business performance. That covers merchant cash advances and revenue-share products, and the "periodically adjusted" limb is there to catch fixed-debit structures with a reconciliation.

Scope and disclosure

The disclosure and registration requirements apply to transactions under $1 million — a higher ceiling than the $500,000 used in Florida, Kansas and Missouri.

Under the OCCC's rulemaking, a provider must disclose the total amount of the financing, the disbursement amount, the finance charge, the repayment amount, the payment amounts, and the period over which payments equal the repayment amount. The bill analysis for HB 700 also records disclosure of prepayment charges and any unpaid interest carried over when existing financing is refinanced, and requires the recipient to sign the disclosures before the application is finalised.

There is no APR requirement, and the statute goes out of its way to say that the Finance Commission may not set a maximum annual percentage rate, finance charge or fee.

Confession of judgment

HB 700 voids confession-of-judgment clauses in these contracts. A confession of judgment is a provision under which you agree in advance that a judgment may be entered against your business without the funder having to sue and prove anything. Texas has now removed the tool from this product class, joining Virginia in doing so explicitly.

If you are shown a Texas sales-based financing contract containing a confession of judgment, cognovit or similar provision, that is a live question to put to a lawyer before signing anything.

Registration, and the date that matters

Providers and brokers register with the OCCC through the Nationwide Multistate Licensing System. The OCCC's commercial sales-based finance page sets out the mechanics: applications through NMLS from 1 September 2026, registration active on receipt of the initial fee, renewal opening 1 November and closing at midnight on 31 December, reinstatement from 1 January to 28 February, and registrations not renewed expiring on 1 January.

The registration deadline for providers and brokers recorded in the legislative analysis is 31 December 2026, with final rules anticipated in August 2026. Because that timetable was still running as this was written, confirm the current registration status of the rules and of any funder with the OCCC rather than assuming the register is complete.

Enforcement

Civil penalties run to $10,000 for each violation. The statute creates no private right of action for recipients. Enforcement is the OCCC's job, and complaints go there.

Using a Texas offer sheet

• The disclosure gives you the finance charge and the repayment amount but the price question is still yours to answer: divide the finance charge by the disbursement amount, then set it against the disclosed period.
• Because Texas explicitly declines to cap rates, do not read registration as any comment on price. A registered provider can charge whatever the market bears.
• Get the reconciliation terms in writing. On a product defined partly by "periodically adjusted" payments, how and when the funder recalculates your payment against actual revenue is a term with real money in it.
• Search the contract for confession-of-judgment language, and for where disputes are to be heard.

Reading the disclosed figures

Illustrative only — a covered transaction disclosing: total amount of financing 200,000; disbursement amount 191,000; finance charge 60,000; repayment amount 260,000; payments of 5,000 a week; period 52 weeks.

The finance charge is stated against the total financing. Against the money that reached your account it is 69,000, which is 36.1 cents per dollar disbursed rather than the 30 cents the disclosure implies. Add the disclosed period and the picture completes: 191,000 received against 52 weekly payments of 5,000 works out at about 1.24% a week, roughly 64% a year on a nominal basis.

The statute gives you every input for that calculation and asks you to do none of it. Do it anyway, on item 2 rather than item 1, before you compare two offers.

The "periodically adjusted" limb is doing work

A funder cannot step outside chapter 398 by replacing a percentage-of-sales remittance with a fixed daily ACH, because financing with payments periodically adjusted based on business performance is inside the definition. That is worth knowing for a practical reason: it makes the reconciliation mechanism part of what defines the product. Ask how often the payment is recalculated, against what measure of revenue, what you have to submit to trigger it, and how long the funder has to respond. Get all four in the contract.

If a confession of judgment appears anyway

Contracts circulate long after a law changes, and template documents are slow to catch up. If you are shown a Texas sales-based financing contract containing a confession of judgment, a cognovit, a warrant of attorney or a clause letting a judgment be entered without suit, do not sign it and do not negotiate the wording yourself. Send it to a lawyer, and treat the document's presence as information about how carefully the rest of the package was assembled.

What Texas does not regulate

Price. Deliberately. There is also no state disclosure duty above $1 million, and general commercial lending outside the sales-based definition — a straight term loan, an equipment finance agreement — is not covered by chapter 398 at all.

Read the current text and the current rules before relying on any date or figure here; this area moved twice between 2025 and 2026. The bill analysis is a useful starting point for the legislative shape.

This is general information and not legal advice for your situation.