BILL ANALYSIS Senate Research Center S.B. 2677 89R8940 BCH-D By: Perry Business & Commerce 4/29/2025 As Filed AUTHOR'S / SPONSOR'S STATEMENT OF INTENT Many small businesses turn to commercial sales-based financing/merchant cash advances (MCA) for financing tools to secure capital, particularly for those who may not have ready access to bank loans or credit. However, although commercial sales-based financing/MCAs resemble traditional loans they lack the same type of regulation and oversight of banks or credit lenders. Unlike conventional loans, commercial sales-based/MCAs provide an upfront cash payment in exchange for a percentage of future sales revenue. They are structured as "sales-based financing" and are currently not disclosed as loans, so they are not subject to regulatory oversight. Bill Summary S.B. 2677 requires a commercial sales-based financing/MCA provider to be transparent and follow fair lending practices. It requires commercial sales-based financing/MCAs to disclose all costs associated with the funds as well as the frequency of the payments and all requirements of the extended offer to a recipient receiving more than $500,000 in funding. It requires broker registration of commercial sales-based financing/MCAs with the Texas Department of Banking. And it enforces penalties for violations, including fines of up to $100,000. As proposed, S.B. 2677 amends current law relating to disclosures for certain commercial sales-based financing transactions and the registration of commercial sales-based financing brokers, authorizes a fee, and provides a civil penalty. RULEMAKING AUTHORITY Rulemaking authority is expressly granted to the Finance Commission of Texas in SECTION 1 (Sections 398.004 and 398.053, Finance Code) of this bill. SECTION BY SECTION ANALYSIS SECTION 1. Amends Title 5, Finance Code, by adding Chapter 398, as follows: CHAPTER 398. COMMERCIAL SALES-BASED FINANCING SUBCHAPTER A. GENERAL PROVISIONS Sec. 398.001. DEFINITIONS. Defines "commercial sales-based financing," "commercial sales-based financing transaction," "commercial sales-based financing broker," "disbursement amount," "finance charge," "financer," "person," "provider," "recipient," "sales-based financing," "specific offer," and "total repayment amount." Sec. 398.002. EXEMPTIONS. Provides that this chapter does not apply to a provider that is: (1) 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; (2) a person acting in the capacity of a technology services provider to an entity exempt under this section as part of the entity's commercial sales-based financing program if the person has no interest, arrangement, or agreement to purchase any interest in the commercial sales-based financing extended in connection with the program; (3) a lender regulated under the Farm Credit Act of 1971 (12 U.S.C. Section 2001 et seq.); or (4) a person who extends or brokers certain financial transactions. Sec. 398.003. APPLICATION OF OTHER LAW. (a) Provides that a sales-based financing transaction is not a form of an account purchase transaction for purposes of Section 306.103 (Account Purchase Transaction), regardless of the principal amount of the advance. (b) Provides that fees and charges paid, or charged under, a sales-based financing transaction are considered interest for usury purposes under state law, regardless of the principal amount of the advance. Sec. 398.004. ADMINISTRATION OF CHAPTER; RULEMAKING. (a) Requires the Texas Department of Banking (TDB) to administer, implement, and enforce this chapter. (b) Requires the Finance Commission of Texas (commission) to adopt rules as necessary to administer and implement this chapter. SUBCHAPTER B. REGULATION AND DISCLOSURE REQUIREMENTS Sec. 398.051. DISCLOSURES. (a) Requires a provider, if the provider extends a specific offer of commercial sales-based financing of more than $500,000 to a recipient in this state, to disclose to the recipient certain financial information. (b) Requires the provider, if, as a condition of obtaining commercial sales-based financing, the provider requires the recipient to pay off the outstanding balance of an existing commercial sales-based financing from the same provider, to disclose to the recipient: (1) the amount of the new commercial sales-based financing used to pay off the portion of the outstanding balance of the existing commercial sales-based financing that consists of prepayment charges required to be paid and any unpaid interest expense that was not forgiven at the time of renewal of the transaction; and (2) if the disbursement amount will be reduced to pay down any unpaid portion of the outstanding balance, the actual dollar amount by which the disbursement amount will be reduced. Sec. 398.052. SIGNATURE. Requires the provider to obtain the recipient's signature on the disclosures required by Section 398.051 before finalizing the application for the commercial sales-based financing transaction. Sec. 398.053. BROKER REGISTRATION. (a) Prohibits a person from engaging in business as a commercial sales-based financing broker for compensation in this state unless, before conducting business, the person registers with TDB. Provides that the registration is effective on receipt by TDB of a completed registration form as provided by Subsection (d) and the required registration fee and remains effective until renewal. (b) Requires a broker, on or before January 31 of each year after filing an initial registration, to file a renewal registration form with the required renewal registration fee. (c) Requires the broker to pay a registration fee on filing an initial registration and a renewal registration fee on filing a renewal registration. (d) Requires that the registration or renewal registration form include certain identification information. (e) Requires the commission to by rule set the registration fee and registration renewal fee in amounts sufficient to cover the registration costs and adopt a form to be used for a registration or renewal registration under this section. Sec. 398.054. UPDATE OF REGISTRATION STATEMENT. Requires a commercial sales-based financing broker to update information contained in the registration statement not later than the 90th day after the date on which the information changes. SUBCHAPTER C. ENFORCEMENT Sec. 398.101. CIVIL PENALTY. Provides that a person who violates this chapter is subject to a civil penalty of $10,000 for each violation, not to exceed $100,000 for all aggregated violations. Sec. 398.102. DECEPTIVE TRADE PRACTICE. Provides that a violation of this chapter is considered a deceptive trade practice under Subchapter E (Deceptive Trade Practices and Consumer Protection), Chapter 17 (Deceptive Trade Practices), Business & Commerce Code, and is actionable under that chapter. Sec. 398.103. PRIVATE RIGHT OF ACTION NOT AUTHORIZED. Provides that this chapter does not create a private right of action against any person based on compliance or noncompliance with this chapter. SECTION 2. (a) Requires a person engaging in business as a commercial sales-based financing broker on the effective date of this Act, not later than January 1, 2026, to register under Section 398.053, Finance Code, as added by this Act. (b) Requires the commission, not later than December 1, 2025, to adopt rules setting the registration and registration renewal fees and adopting a form for the registration of commercial sales-based financing brokers as required under Section 398.053, Finance Code, as added by this Act. SECTION 3. Effective date: September 1, 2025.
BILL ANALYSIS
Senate Research Center S.B. 2677
89R8940 BCH-D By: Perry
Business & Commerce
4/29/2025
As Filed
Senate Research Center
S.B. 2677
89R8940 BCH-D
By: Perry
Business & Commerce
4/29/2025
As Filed
AUTHOR'S / SPONSOR'S STATEMENT OF INTENT
Many small businesses turn to commercial sales-based financing/merchant cash advances (MCA) for financing tools to secure capital, particularly for those who may not have ready access to bank loans or credit.
However, although commercial sales-based financing/MCAs resemble traditional loans they lack the same type of regulation and oversight of banks or credit lenders. Unlike conventional loans, commercial sales-based/MCAs provide an upfront cash payment in exchange for a percentage of future sales revenue. They are structured as "sales-based financing" and are currently not disclosed as loans, so they are not subject to regulatory oversight.
Bill Summary
S.B. 2677 requires a commercial sales-based financing/MCA provider to be transparent and follow fair lending practices.
It requires commercial sales-based financing/MCAs to disclose all costs associated with the funds as well as the frequency of the payments and all requirements of the extended offer to a recipient receiving more than $500,000 in funding.
It requires broker registration of commercial sales-based financing/MCAs with the Texas Department of Banking.
And it enforces penalties for violations, including fines of up to $100,000.
As proposed, S.B. 2677 amends current law relating to disclosures for certain commercial sales-based financing transactions and the registration of commercial sales-based financing brokers, authorizes a fee, and provides a civil penalty.
RULEMAKING AUTHORITY
Rulemaking authority is expressly granted to the Finance Commission of Texas in SECTION 1 (Sections 398.004 and 398.053, Finance Code) of this bill.
SECTION BY SECTION ANALYSIS
SECTION 1. Amends Title 5, Finance Code, by adding Chapter 398, as follows:
CHAPTER 398. COMMERCIAL SALES-BASED FINANCING
SUBCHAPTER A. GENERAL PROVISIONS
Sec. 398.001. DEFINITIONS. Defines "commercial sales-based financing," "commercial sales-based financing transaction," "commercial sales-based financing broker," "disbursement amount," "finance charge," "financer," "person," "provider," "recipient," "sales-based financing," "specific offer," and "total repayment amount."
Sec. 398.002. EXEMPTIONS. Provides that this chapter does not apply to a provider that is:
(1) 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;
(2) a person acting in the capacity of a technology services provider to an entity exempt under this section as part of the entity's commercial sales-based financing program if the person has no interest, arrangement, or agreement to purchase any interest in the commercial sales-based financing extended in connection with the program;
(3) a lender regulated under the Farm Credit Act of 1971 (12 U.S.C. Section 2001 et seq.); or
(4) a person who extends or brokers certain financial transactions.
Sec. 398.003. APPLICATION OF OTHER LAW. (a) Provides that a sales-based financing transaction is not a form of an account purchase transaction for purposes of Section 306.103 (Account Purchase Transaction), regardless of the principal amount of the advance.
(b) Provides that fees and charges paid, or charged under, a sales-based financing transaction are considered interest for usury purposes under state law, regardless of the principal amount of the advance.
Sec. 398.004. ADMINISTRATION OF CHAPTER; RULEMAKING. (a) Requires the Texas Department of Banking (TDB) to administer, implement, and enforce this chapter.
(b) Requires the Finance Commission of Texas (commission) to adopt rules as necessary to administer and implement this chapter.
SUBCHAPTER B. REGULATION AND DISCLOSURE REQUIREMENTS
Sec. 398.051. DISCLOSURES. (a) Requires a provider, if the provider extends a specific offer of commercial sales-based financing of more than $500,000 to a recipient in this state, to disclose to the recipient certain financial information.
(b) Requires the provider, if, as a condition of obtaining commercial sales-based financing, the provider requires the recipient to pay off the outstanding balance of an existing commercial sales-based financing from the same provider, to disclose to the recipient:
(1) the amount of the new commercial sales-based financing used to pay off the portion of the outstanding balance of the existing commercial sales-based financing that consists of prepayment charges required to be paid and any unpaid interest expense that was not forgiven at the time of renewal of the transaction; and
(2) if the disbursement amount will be reduced to pay down any unpaid portion of the outstanding balance, the actual dollar amount by which the disbursement amount will be reduced.
Sec. 398.052. SIGNATURE. Requires the provider to obtain the recipient's signature on the disclosures required by Section 398.051 before finalizing the application for the commercial sales-based financing transaction.
Sec. 398.053. BROKER REGISTRATION. (a) Prohibits a person from engaging in business as a commercial sales-based financing broker for compensation in this state unless, before conducting business, the person registers with TDB. Provides that the registration is effective on receipt by TDB of a completed registration form as provided by Subsection (d) and the required registration fee and remains effective until renewal.
(b) Requires a broker, on or before January 31 of each year after filing an initial registration, to file a renewal registration form with the required renewal registration fee.
(c) Requires the broker to pay a registration fee on filing an initial registration and a renewal registration fee on filing a renewal registration.
(d) Requires that the registration or renewal registration form include certain identification information.
(e) Requires the commission to by rule set the registration fee and registration renewal fee in amounts sufficient to cover the registration costs and adopt a form to be used for a registration or renewal registration under this section.
Sec. 398.054. UPDATE OF REGISTRATION STATEMENT. Requires a commercial sales-based financing broker to update information contained in the registration statement not later than the 90th day after the date on which the information changes.
SUBCHAPTER C. ENFORCEMENT
Sec. 398.101. CIVIL PENALTY. Provides that a person who violates this chapter is subject to a civil penalty of $10,000 for each violation, not to exceed $100,000 for all aggregated violations.
Sec. 398.102. DECEPTIVE TRADE PRACTICE. Provides that a violation of this chapter is considered a deceptive trade practice under Subchapter E (Deceptive Trade Practices and Consumer Protection), Chapter 17 (Deceptive Trade Practices), Business & Commerce Code, and is actionable under that chapter.
Sec. 398.103. PRIVATE RIGHT OF ACTION NOT AUTHORIZED. Provides that this chapter does not create a private right of action against any person based on compliance or noncompliance with this chapter.
SECTION 2. (a) Requires a person engaging in business as a commercial sales-based financing broker on the effective date of this Act, not later than January 1, 2026, to register under Section 398.053, Finance Code, as added by this Act.
(b) Requires the commission, not later than December 1, 2025, to adopt rules setting the registration and registration renewal fees and adopting a form for the registration of commercial sales-based financing brokers as required under Section 398.053, Finance Code, as added by this Act.
SECTION 3. Effective date: September 1, 2025.