Texas HB 700 vs California SB 1235
Two of the most influential state MCA loan disclosure laws — how they stack up.
Texas HB 700 and California SB 1235 share a common purpose: bringing transparency to merchant cash advance contracts so small business owners can see the true cost of capital before they sign. California blazed the trail in 2018 with the first state commercial financing disclosure law; Texas followed in 2023 with HB 700, which takes effect September 1, 2025. The two laws differ in scope, disclosure format, and enforcement, but both give borrowers leverage to challenge non-compliant MCA agreements.
| Provision | Texas HB 700 | California SB 1235 |
|---|---|---|
| Effective date | September 1, 2025 | Signed 2018; DFPI regulations effective December 9, 2022 |
| Who it covers | Merchant cash advance providers and other non-bank commercial financers offering covered financing to Texas small businesses. Traditional banks and certain secured commercial lenders are exempt. | Non-bank providers of commercial financing in California — including merchant cash advance companies, factoring companies, and online and alternative lenders. Banks, credit unions, and certain secured commercial lenders are exempt. |
| Enforced by | Texas Office of Consumer Credit Commissioner (OCCC) and Texas Attorney General, per HB 700. | California Department of Financial Protection and Innovation (DFPI). |
| Penalties | Providers that fail to comply face state regulatory enforcement and civil exposure. Non-compliant contracts may be challenged by Texas borrowers as part of restructuring or settlement negotiations. | Providers that fail to deliver the required disclosures face DFPI regulatory penalties and possible legal challenges to their contracts. Non-compliance can also become leverage for borrowers disputing an MCA. |
| Required disclosure style | Plain-language repayment terms, fees, and payment schedule stated clearly before signing. | Standardized, consumer-grade disclosure form including an APR-style annualized cost metric. |
| Fee and cost breakdown | All fees and costs baked into the MCA must be broken out — no hidden charges or surprise holdbacks. | All fees, interest, and charges aggregated into a single total-cost number alongside itemized components. |
| Prepayment terms | Prepayment and non-discounted payoff terms must be stated as part of plain-language disclosure. | Disclosure must spell out whether paying early saves money or if the full repayment amount is still owed. |
What this means for MCA borrowers
Both laws exist to solve the same problem: MCA contracts full of daily ACH withdrawals, stacked positions, and hidden fees that strip business owners of the ability to compare offers or plan cash flow. SB 1235 addresses it through a standardized, APR-style disclosure form — the same kind of consumer-grade transparency expected with credit cards or mortgages. HB 700 takes a plain-language approach, requiring repayment terms, fees, and payment schedules to be spelled out clearly before signing.
The practical differences matter. California's APR-style disclosure makes it easier to line up competing MCA offers against bank loans and other forms of credit. Texas's plain-language rule puts a heavier burden on providers to avoid buried clauses, but borrowers will still need to do the math to compare offers on a true cost-of-capital basis. Enforcement also differs: California's DFPI has a dedicated commercial financing disclosure program, while Texas enforcement falls to the Office of Consumer Credit Commissioner and the Attorney General.
For any small business carrying an MCA in either state, the takeaway is the same: the disclosures you were entitled to receive are leverage. Missing, incomplete, or misleading disclosures can become grounds to renegotiate, consolidate, or challenge the contract outright. With Texas and California leading the way, expect more states to follow — and expect a wider national baseline for MCA borrower protection in the years ahead.
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