Texas Disclosure Laws: What Your Funding Offer Must Tell You
In short: Texas disclosure laws (like the Texas Business and Commerce Code) require funders to clearly state the total amount of funds provided, the total repayment amount, the repayment method (e.g., percentage of daily sales or fixed ACH), and any fees or charges. This helps you compare offers and avoid surprises. Always review these numbers carefully before accepting any funding.
Key takeaways
- Texas law requires funders to disclose the total amount you receive, total repayment amount, and repayment method.
- Disclosures must be in writing and provided before you sign any agreement.
- Common funding types covered include merchant cash advances, business lines of credit, and invoice factoring.
- You have the right to see how costs are calculated-like factor rates or fees-in plain language.
What Are Texas Disclosure Laws for Business Funding?
Texas disclosure laws are state regulations that require funders-whether they offer merchant cash advances, business lines of credit, invoice factoring, or other types of working capital-to clearly and transparently spell out the key terms of a funding offer before you sign. These laws are designed to protect small-business owners from hidden fees, confusing repayment structures, and unexpected costs. In Texas, the relevant statutes fall under the Texas Business and Commerce Code, which mandates that funders provide a written disclosure statement that includes the total amount of funding provided, the total amount you must repay, the repayment method (such as a fixed daily or weekly ACH debit or a percentage of daily credit card sales), and any fees, charges, or origination costs.
This is not a loan in the traditional sense for many funding products-like merchant cash advances-but the law still requires transparency. The goal is to level the playing field so you can compare offers side by side and understand exactly what you're agreeing to. For example, if a funder offers you $20,000 with a factor rate of 1.3, the disclosure must show that your total repayment is $26,000, and it must explain how that repayment will be collected-whether through a fixed daily amount or a percentage of your daily sales.
These laws apply to funding offers made to businesses located in Texas or to businesses that receive funding from a funder operating in Texas. They are especially important for small-business owners who may not have a finance background and need clear, straightforward information to make a sound decision.
🔗 Related reading: SBA Loans vs. Cash Advances: Georgia Business Guide · Business Cash Advance Near Me
Why These Laws Matter for Small-Business Owners
Running a small business in Texas means you're focused on growth, customers, and operations-not deciphering fine print. Disclosure laws exist to protect you from predatory practices and ensure you have the information needed to evaluate whether a funding offer is right for your business. Without these laws, some funders might bury costs in complex terms or fail to explain how repayment works, leading to cash flow surprises.
For instance, consider a merchant cash advance where repayment is tied to a percentage of daily credit card sales. If the disclosure doesn't clearly state that percentage or the total cap, you might end up repaying far more than expected during slow months. Texas law requires that the funder disclose the specific percentage or fixed amount, the frequency of payments, and the total repayment amount. This transparency helps you budget and plan.
Additionally, these laws help you compare different funding options. A business line of credit might have an annual fee and interest rate, while a cash advance uses a factor rate. With proper disclosures, you can calculate the true cost of each and choose the one that fits your business best. Capital Match Now is a free service that helps you get matched with vetted funding partners who adhere to these disclosure requirements, so you can review offers with confidence.
What Information Must Be Disclosed?
Under Texas law, a funding offer must include several key pieces of information. Here's what you should expect to see in writing before you sign any agreement:
Total Amount of Funding Provided
This is the gross amount the funder will give you, before any fees are deducted. For example, if you're approved for $25,000, the disclosure should state that clearly. Some funders may deduct origination fees upfront, so the net amount you receive might be less. The disclosure must show both the gross and net amounts if there's a difference.
Total Repayment Amount
This is the total you will pay back, including all fees, interest, or factor rate charges. For a merchant cash advance with a factor rate of 1.25 on $20,000, the total repayment is $25,000. The disclosure must state this number explicitly, not just the factor rate or percentage.
Repayment Method and Frequency
How will you repay? Common methods include:
- Fixed daily or weekly ACH debits from your business bank account
- A percentage of daily credit card sales (often called a "holdback" or "remittance")
- Monthly payments for a line of credit or term loan
The disclosure must specify the method, the amount or percentage, and the frequency (e.g., daily, weekly, monthly).
Fees and Charges
Any origination fees, underwriting fees, documentation fees, or late payment penalties must be itemized. If there are no additional fees, the disclosure should state that as well. Watch for vague terms like "administrative fee"-ask for a breakdown.
Estimated Term or Duration
While not always a fixed term for products like merchant cash advances (which can vary based on sales volume), the disclosure should include an estimated repayment period or a clear explanation of how the term is determined. For example, "Based on your average daily sales, repayment is estimated to take 6 to 9 months."
Annual Percentage Rate (APR) or Equivalent Cost
For loans and lines of credit, the APR must be disclosed. For merchant cash advances, Texas law may require a similar cost metric, such as the total cost expressed as a percentage or a factor rate. This helps you compare across different types of funding.
🔗 Related reading: Massachusetts Disclosure Laws: What Your Funding Offer Must Tell You · Find Merchant Funding
How to Use Disclosures to Compare Offers
Once you have disclosure documents from multiple funders, you can compare them effectively. Start by looking at the total repayment amount relative to the funding provided. This gives you the total cost. Then, examine the repayment method-a fixed daily debit might be easier to budget for than a variable percentage of sales. Also, check the estimated term: shorter terms mean higher daily payments but less total interest or fees.
For example, suppose Funder A offers $30,000 with a factor rate of 1.2 and daily ACH debits of $400 until repaid, while Funder B offers $30,000 with a factor rate of 1.35 and a 15% holdback on daily credit card sales. Funder A's total repayment is $36,000, and you know exactly when it ends. Funder B's total repayment is $40,500, but the daily amount fluctuates with sales. Depending on your cash flow, one may be better than the other. The disclosure makes this comparison possible.
Also, look for any prepayment penalties or discounts. Some funders offer a discount if you repay early, while others charge a fee. Texas disclosure laws may require this to be stated. If it's not mentioned, ask.
Common Mistakes to Avoid When Reviewing Offers
Even with clear disclosures, small-business owners can make errors. Here are pitfalls to watch for:
- Focusing only on the payment amount: A low daily payment might seem affordable, but if the term is long, you could end up paying far more in total. Always check the total repayment.
- Ignoring the repayment method: A fixed ACH debit is predictable, but a percentage of sales can be a cash flow strain during slow periods. Understand how each method affects your daily operations.
- Not asking about fees not listed: If a disclosure seems too simple, ask if there are any other charges. Some funders may add processing fees or late payment fees that aren't clearly shown.
- Assuming all funders follow the same rules: While Texas law requires disclosures, not all funders are equally transparent. Work with vetted partners-like those you can be matched with through Capital Match Now-to ensure compliance.
- Skipping the fine print on renewals or extensions: Some funding agreements automatically renew or allow extensions with additional fees. Make sure the disclosure covers these scenarios.
Practical Tips for Texas Small-Business Owners
To make the most of Texas disclosure laws, follow these steps:
- Always get the disclosure in writing before you agree to anything. Verbal promises are not enforceable. A written disclosure gives you a record to refer back to.
- Compare at least three offers. Use the disclosure documents to compare total cost, repayment method, and term. Don't rush into the first offer.
- Ask questions about anything unclear. If a term like "factor rate" or "holdback percentage" isn't explained, ask the funder to clarify in writing. A reputable funder will be happy to do so.
- Check for compliance with Texas law. If a funder refuses to provide a written disclosure or gives you a vague document, that's a red flag. Consider working with a different partner.
- Use a free matching service like Capital Match Now. We connect you with vetted funding partners who are committed to transparency and compliance with Texas disclosure laws. This saves you time and reduces the risk of dealing with less reputable funders.
What If a Funder Doesn't Comply?
If you suspect a funder has violated Texas disclosure laws-for example, by failing to provide a written disclosure or by hiding fees-you have options. First, document everything: save emails, contracts, and any communication. Then, you can file a complaint with the Texas Attorney General's office or consult with a business attorney who specializes in commercial finance. Texas law provides remedies for businesses that have been misled, including the possibility of voiding the agreement or recovering damages.
However, prevention is better than cure. By working with funders who voluntarily comply with disclosure requirements-like those you can be matched with through Capital Match Now-you minimize the risk of encountering non-compliant practices. Our service is free, and we vet our funding partners for transparency and reliability.
Final Thoughts
Texas disclosure laws are your ally as a small-business owner. They ensure that before you commit to a funding offer, you see the full picture: how much you're getting, how much you'll repay, and how the repayment works. By understanding these disclosures, you can make smarter decisions, avoid costly mistakes, and find the right funding for your business. Always read every disclosure carefully, ask questions, and compare offers. And remember, Capital Match Now is here to help you connect with vetted funding partners who respect these laws and put your interests first.