Texas Disclosure Laws: What Your Small Business Funding Offer Must Tell You
In short: Texas law requires funders to disclose key terms like the total amount of funding, fees, repayment schedule, and the annual percentage rate (APR) when applicable. For merchant cash advances, the factor rate and total repayment amount must be clearly stated. Always review the disclosure box or summary before signing.
Key takeaways
- Texas disclosure laws require funders to clearly state the total funding amount, fees, and repayment terms.
- For merchant cash advances, the factor rate and total payback amount must be disclosed.
- APR is required for loans but not for MCAs; understand the difference.
- Always compare offers using the total cost of capital, not just the factor rate.
Why Disclosure Matters for Texas Small Business Owners
When you apply for small business funding in Texas, the offer you receive should be more than just a number. Texas law, through the Texas Finance Code and related regulations, sets expectations for how funders present the costs and terms of their products. Whether you are looking at a merchant cash advance, a term loan, or a business line of credit, clear disclosure helps you compare offers and avoid surprises. This guide walks through what Texas disclosure laws require, what key terms you must see, and how to protect your business.
Get Working Capital Now is a free matching service that connects you with vetted funding partners who prioritize transparency. We are not a lender, bank, or funder, and we do not make credit decisions or issue funds. Our goal is to help you find offers that are straightforward and compliant.
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What Texas Law Requires in a Funding Offer
Overview of the Texas Finance Code
The Texas Finance Code governs lending practices in the state. For consumer loans, there are strict disclosure requirements including APR, finance charges, and payment schedules. Business funding, however, operates under different rules. Many business loans and merchant cash advances are considered commercial transactions and are not subject to the same consumer protections. Nevertheless, Texas law still requires funders to act in good faith and provide clear, not misleading, information.
Disclosure Requirements for Different Funding Types
- Term loans: Must disclose the principal amount, interest rate (often as APR), repayment term, and any fees. The APR should reflect the total cost of borrowing over one year, including origination fees and other charges.
- Merchant cash advances (MCAs): Since MCAs are not loans but purchases of future receivables, they are not required to show an APR. However, funders must disclose the advance amount, the factor rate, the total repayment amount, and the repayment method (e.g., daily ACH or percentage of sales).
- Business lines of credit: Must show the credit limit, draw period, interest rate or APR, any annual fees, and minimum payment terms.
- Equipment financing: Disclosures should include the equipment cost, down payment, interest rate, term, and total lease or loan payments.
Key Terms You Must See in Your Offer
Total Funding Amount and Fees
Every offer should clearly state how much money you will receive upfront. This is the net amount after any fees deducted. Common fees include origination fees, documentation fees, underwriting fees, and processing fees. Texas law does not cap these fees for business funding, but they must be disclosed in writing.
Factor Rate vs. Interest Rate
For MCAs, the factor rate is the multiplier used to calculate total repayment. For example, a factor rate of 1.25 on a $10,000 advance means you repay $12,500. This is not an interest rate, and there is no APR. For term loans, the interest rate is expressed as a percentage, and the APR includes fees to show the true annual cost.
Repayment Schedule and Term
Your offer must specify how often payments are due (daily, weekly, monthly) and the total number of payments. For MCAs, the repayment is often a fixed daily or weekly ACH withdrawal until the total is paid. For loans, the schedule shows each payment amount and due date.
Prepayment Penalties and Default Terms
Some funders charge a penalty if you pay off the advance or loan early. Texas law does not prohibit prepayment penalties for business funding, but they must be disclosed. Similarly, the offer should explain what happens if you miss a payment, including any late fees, default interest rates, or acceleration clauses.
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How to Read the Fine Print
Hidden Fees to Watch For
Beyond the obvious fees, look for charges like application fees, due diligence fees, and lien filing fees. Some funders include a UCC lien filing fee. Ask for a complete fee schedule before signing.
Personal Guarantee and Collateral
Many business funding offers require a personal guarantee, meaning you are personally liable if the business cannot repay. This should be clearly stated. Collateral, such as equipment or accounts receivable, must also be listed.
Automatic Renewal and Confession of Judgment
Some contracts include an automatic renewal clause or a confession of judgment (allowing the funder to obtain a judgment without notice). These are legal in Texas but must be disclosed. Read carefully and ask questions.
Your Rights as a Texas Business Owner
Right to Receive Written Disclosure Before Signing
You have the right to receive a written offer that includes all material terms before you sign. If a funder refuses to provide a written disclosure, consider it a red flag. Get Working Capital Now works only with partners who provide clear, written offers.
Usury Limits and Legal Recourse
Texas usury laws cap interest at 10% per year for consumer loans, but business loans often have higher limits or are exempt. If you believe a funder has charged an illegally high rate, you may have legal recourse. Consult a Texas attorney for specific advice.
Right to Cancel
Unlike consumer loans, business funding agreements generally do not have a statutory right of rescission. However, some funders offer a review period. Always ask about cancellation policies before signing.
Practical Tips for Comparing Offers
Use Total Cost of Capital
Instead of focusing solely on the factor rate or interest rate, calculate the total dollar amount you will repay. For example, a $20,000 advance with a 1.3 factor rate costs $26,000. A $20,000 loan at 15% APR over 12 months costs about $21,600 in total payments. Compare these numbers.
Ask for a Sample Repayment Schedule
Request a detailed schedule showing each payment amount and date. This helps you understand cash flow impact.
Verify Funder Licensing
While many business funders are not required to be licensed in Texas, some are. You can check with the Texas Office of Consumer Credit Commissioner or the Secretary of State. If a funder is licensed, they are subject to additional oversight.
How Get Working Capital Now Helps
Our free service matches you with vetted funding partners who are committed to clear disclosure. We do not charge you any fees, and we never promise guaranteed approval or specific rates. Instead, we help you find offers that include the key terms discussed here. When you receive an offer through our network, you can trust that the funder has agreed to provide transparent documentation.
Remember, we are a matching service, not a lender. We do not make credit decisions or issue funds. Your relationship is with the funding partner you choose.
Conclusion
Texas disclosure laws may not be as strict for business funding as for consumer loans, but you still have the right to clear, accurate information. By understanding what to look for in your funding offer, you can make smarter decisions for your business. Always read the fine print, ask questions, and compare total costs. If an offer seems unclear or missing key details, walk away. Get Working Capital Now is here to help you find partners who respect your need for transparency.