Texas Merchant Cash Advance Lawyers
A merchant cash advance is structured as a purchase of a business’s future receivables rather than a loan. The contract usually comes with a personal guarantee, daily or weekly bank debits, a clause choosing New York law, and a clause requiring suit in New York. For a Texas business owner, the right first lawyer depends on three facts. The first is where the funder has sued or will sue. The second is whether a judgment already exists. The third is whether the advance was signed before or after Texas changed its law in September 2025. Often the honest answer is that a Texas merchant needs a New York lawyer first, a Texas lawyer second, and sometimes neither.
House Bill 700
A new law for commercial financing, specifically merchant cash advances, has been passed in Texas. House Bill 700 was signed by Governor Greg Abbott on June 20, 2025. A new Chapter 398 of the Texas Finance Code has been added, which went into effect on September 1, 2025.
The law also covers sales-based financing. It would include “advance purchase” contracts that are repaid as a percentage of sales, as well as fixed dollar purchase agreements with a right of reconciliation based on revenue. Providers must make the following disclosures if providing less than $1 million in financing for a Texas entity. The disclosure must be signed: Amount financed, amount disbursed, finance charge, total amount repayable, amount and term of repayment, fees, any collateral securing the transaction, and the compensation of a broker. Existing providers and brokers must register with the Office of Consumer Credit Commissioner by December 31, 2026, even if they do not have a physical presence in Texas.
Two other interesting things about House Bill 700 on existing disputes: Section 398.056 of House Bill 700 provides that a funder or broker can not simply make an automatic withdrawal from a merchant’s bank account unless the funder or broker has perfected a first-priority security interest in the bank account. Therefore, it will be tough for a funder or broker to comply with the law in the event it takes a second or third position in a stacked deal. Section 398.055 of House Bill 700 provides that a covered contract is unenforceable if it has a confession of judgment or similar clause. There is a $10,000 per violation civil penalty, however, only the Office of Consumer Credit Commissioner can enforce this chapter, not merchants, who will not have a right to a private lawsuit. House Bill 700 also does not have a provision on venue or choice of law. Finally, House Bill 700 does not have a provision on advances entered into prior to September 1, 2025 and it is unclear if the law will be retroactively applied.
Prior to the passage of House Bill 700, Texas usury laws provided a weak defense against merchant cash advances. The Finance Code Section 306.103 says, “If parties agree to characterize a sale of accounts at a discount as a sale, the sale is conclusively deemed not a loan, and the discount is conclusively deemed not interest. Express Working Capital, LLC v. Starving Students, Inc. (N.D. Tex. 2014) is an example of a federal judge in Dallas applying the statute. In this case, the funder had purchased $1,775,500 of future credit card receivables for $1,325,000. The merchant argued that this was a usury transaction, and the judge disagreed. Section 398.004 of House Bill 700 excludes all sales-based financing from the safe harbor regardless of the size of the deal. It is unclear whether the 18% limitation would be applied to the advances as Texas law doesn’t explicitly state that the advances are loans, according to commentators. The Texas Finance Code Section 305.001 stipulates that the defendant in a commercial loan is liable for three times the excess interest charged.
New York Confession of Judgment
Confessions of judgment have not been particularly strong against Texas merchants, whether confessed in Texas or New York. The Civil Practice and Remedies Code, Section 30.001, has been on the books in Texas since 1985, and prohibits the use of a document signed prior to the commencement of the lawsuit to confess judgment. Governor Andrew Cuomo signed legislation amending CPLR 3218 on August 30, 2019. This amendment specifies that a confession of judgment must be filed only in the New York county where the defendant was domiciled when it signed the confession of judgment. A business resides where it has its “place of business.” A Texas business with no place of business in New York does not have a New York county that meets the requirement of the statute. Any New York confession of judgment entered against such a Texas merchant after this amendment went into effect may be challengeable in New York, as well as in Texas if and when the funder seeks to enforce it.
A Clause Sending Disputes to New York
Without a confession, a funder has to file a lawsuit, and the contract typically designates a New York state court. Texas courts usually enforce the contract. In In re AIU Insurance Co. (Tex. 2004), the Texas Supreme Court enforced a clause sending disputes to New York. The court said the resisting party bears a heavy burden to show enforcement would be unreasonable or unjust, or that the clause resulted from fraud or overreaching. The court permitted mandamus if the trial judge refused to enforce such a clause. A Texas merchant who files first in Texas may therefore find the case transferred to New York. Texas state courts and the four district Texas federal courts (North, South, East and West) are the battlegrounds, however, later, when enforcing a judgment or in bankruptcy.
Uniform Enforcement of Foreign Judgments Act
The New York judgment does not, on its own, attach to assets in Texas. Texas Civil Practice and Remedies Code Chapter 35 (Texas’s version of the Uniform Enforcement of Foreign Judgments Act) requires that the funder file an authenticated copy with a Texas court clerk. The funder must include an affidavit declaring the last known addresses of the parties, and must mail notice of the filing to the merchant. Once filed, the judgment is deemed a Texas judgment, and subject to the same motions to reopen, vacate or stay the judgment. Section 35.006 requires the Texas court to stay the judgment if the merchant can show that an appeal is pending or could still be brought, and the merchant has posted the security required by New York. A challenge must generally be filed within 30 days before the Texas court loses its jurisdiction over the judgment.
As a final note, one way funders attempt to avoid domestication is by having a New York attorney issue a restraining notice to the merchant’s bank pursuant to N.Y. CPLR 5222. In Motorola Credit Corp. v. Standard Chartered Bank (2014), New York’s highest court concluded the restraining notice did not freeze the accounts in foreign branches of the bank when served on a New York branch. A New York civil court in Lease Finance Group, LLC v. Fiske (2014), concluded the restraining notice served on a Pennsylvania branch of a bank was not effective to freeze an account in Georgia. Banks may freeze accounts after receiving restraining notices. A Texas business that has an account frozen may have to serve a motion in New York pursuant to CPLR 5239 or 5240 seeking dissolution of the restraint.
Exemptions Belong to Individuals
Regarding the Texas exemption statutes, the exemptions belong to the individual who signed the personal guarantees, not the business. Homesteads are exempt, regardless of value. Up to 10 acres within a city and 100 acres for a single adult and 200 acres for a family in rural areas are exempt. A variety of personal property, up to a value of $50,000 for a single adult and $100,000 for a family is exempt under Property Code Section 42.001. These exemptions belong to individuals. So there is no similar exemption for an LLC or corporation’s bank account or equipment.
As far as a guarantor with a domesticated judgment goes, the exemptions will control what, if any, a funder can collect on that judgment. Which exemptions to claim of course will be up to a Texas lawyer. They determine the scope of a funder’s remedies, and filing them is a job for a Texas lawyer. Which lawyer do you need? For a case pending in New York, the deadlines are New York deadlines and the lawyer must be admitted to the New York bar, or has to work with one.
A Texas lawyer is the most important when a funder has domesticated a judgment, garnished a Texas account, sued a guarantor in Texas, or debited an account in violation of House Bill 700. Some businesses representing themselves as Texas merchant cash advance lawyers are not admitted to the Texas bar. A lawyer is valuable for her bar admission, not the office location.
Bankruptcy Attorney
First consult a bankruptcy attorney if multiple funders are withdrawing simultaneously or a judgment will terminate the business. 28 U.S.C. § 1408 provides a Texas business in bankruptcy may file for relief in the district where it is domiciled, had its principal place of business, or had the majority of its assets for most of the 180 days preceding the petition. So, the case is a Texas bankruptcy, regardless of the forum selection clause in the agreement. Subchapter V of Chapter 11 Bankruptcy is for businesses with $3,424,000 or less in debt as of January 1, 2026, but Congress has discussed returning to the $7.5 million cap. Where there is no pending action and the only problem is the debits are unmanageable, a settlement expert may suffice. HB 700’s debit and disclosure requirements may empower the negotiator by the filing of a complaint with the Office of Consumer Credit Commissioner.
