The Battle Against MCA in Texas
June 12, 2025David Roitblat is the founder and CEO of Better Accounting Solutions, an accounting firm based in New York City, and a leading authority in specialized accounting for merchant cash advance companies.To connect with David or schedule a call about working with Better Accounting Solutions, email david@betteraccountingsolutions.com.
Texas, a state associated with limited government intervention and freedom of business to operate and succeed in a capitalist society, stands at a crossroads.
Governor Greg Abbott has until June 22nd to decide whether to sign House Bill 700 into law—a decision that could fundamentally reshape how small businesses access capital in the Lone Star State. If he signs it, or simply lets the deadline pass without action, this sweeping legislation will take effect on September 1, 2025. The action will potentially cut off vital funding sources for thousands of Texas entrepreneurs, in a direct assault on the merchant cash advance industry that has been a lifeline for the people of his state.
The stakes couldn’t be higher. While supporters frame HB 700 as consumer protection, this bill targets sales-based financing—financial tools that have become lifelines for small businesses shut out of traditional bank lending.
Small business owners know the frustration of walking into a bank and walking out empty-handed all too well. Traditional lenders have tightened their belts, especially for newer businesses, minority-owned enterprises, and companies in industries deemed “risky.” When a restaurant owner needs quick capital to fix a broken freezer, or a contractor requires funds to purchase materials for a big job, they can’t wait weeks for a bank’s approval process. They need solutions now.
That’s where alternatives come in. Revenue-based financing provides capital based on future sales, not credit scores or lengthy financial histories. Yes, they can be more expensive than bank loans—but they’re also available when banks say no.
This financing drives business growth, job creation, and the health of Main Street. When small businesses can access capital quickly, they expand, hire employees, and strengthen their communities.
HB 700 goes far beyond simple disclosure requirements. While transparency is important—and most responsible providers already provide clear terms—this bill creates a regulatory maze that could price many providers out of the Texas market entirely.
The bill imposes sweeping new requirements that will fundamentally change how sales-based financing companies operate in Texas. Companies providing commercial sales-based financing must register with the Office of Consumer Credit Commissioner by December 31, 2026, including both direct providers and brokers, with mandatory annual renewals and fees.
For any financing under $1 million, sales-based financing providers must provide extensive disclosures covering everything from total financing amounts and disbursement details to payment schedules, additional fees, prepayment penalties, and even broker compensation arrangements. The operational restrictions go much deeper, voiding confession of judgment clauses entirely and requiring companies to obtain recipient signatures on all disclosures before finalizing any transaction.
Perhaps most problematic is the prohibition on automatic debiting of recipient accounts unless companies hold a “validly perfected first-priority security interest”—a legal standard that’s nearly impossible to meet in practice and effectively kills the streamlined payment processes that make revenue-based financing work for the funders, and by extension, the merchants.
The Finance Commission of Texas gains broad authority to identify and prohibit “unfair, deceptive, or abusive” practices, though interestingly, they cannot set maximum interest rates or fees. Violations carry steep civil penalties of $10,000 each, and the law applies to any provider offering services to Texas recipients via the Internet, regardless of where the company is physically located. These aren’t minor regulatory adjustments—they represent a complete overhaul that could drive legitimate capital providers out of the Texas market entirely.
This isn’t just bureaucratic red tape. It’s a fundamental misunderstanding of how modern business financing works. Revenue-based financing depends on streamlined payment processes tied to daily sales. Without this mechanism, the entire business model becomes unworkable.
If HB 700 becomes law, the consequences will ripple through Texas’s economy. Small businesses already struggling with inflation, labor shortages, and supply chain disruptions will lose access to flexible financing options. Rural businesses, minority-owned enterprises, and startups will be hit hardest—exactly the businesses Texas should be supporting.
The irony is stark. Texas has built its reputation as a business-friendly state, attracting companies fleeing overregulation in other states. HB 700 threatens to undermine that competitive advantage by making it harder for small businesses to access the capital they need to grow.
The voices of actual small business owners have been largely absent from this debate. Many don’t even know this legislation exists, despite its potential impact on their operations. Those who are aware express frustration that lawmakers are making decisions about their financing options without understanding their real-world needs.
Governor Abbott faces a clear choice. He can sign legislation that will likely drive responsible funders out of Texas, or he can recognize that small businesses need access to diverse financing options.
The goal should be protecting businesses from truly predatory practices while preserving their ability to access capital when traditional banks won’t help. That requires nuanced policy, not broad restrictions that treat all alternative finance providers as predators.
The battle against MCA regulation in Texas isn’t really about merchant cash advances—it’s about whether Texas will remain a place where small businesses can find the capital they need to thrive. Governor Abbott’s decision will determine not just the fate of HB 700, but the future of small business financing in Texas.
The countdown has begun. Texas small businesses are watching and waiting.
North Dakota Law Regulates “Alternative Financing” as a “Loan”
May 30, 2025The state legislature in North Dakota recently passed House Bill 1127. This bill made a simple amendment to a 1970s-era law called the Money Brokers Act (“MBA”).
Despite its name, the MBA is not limited to brokers. It is the primary law regulating consumer and commercial lending in North Dakota. It applies to any person engaged in the act of arranging or providing loans. Such persons are called “money brokers” in the MBA.
This amendment adds a two-sentence definition of the word “loan”. When this amendment takes effect, the MBA will define “loan” as follows:
“Loan” means a contract by which one delivers a sum of money to another and the latter agrees to return at a future time a sum equivalent to that which the person borrowed. This includes alternative financing products as identified by the commissioner through the issuance of an order.
Is this is a big deal? Yes. Here’s why.
Until now, the MBA has always defined the term “money brokering” to include the act of providing “loans” but has never defined the term “loan”. As a result, forms of business financing that are not typically considered loans – such as factoring or revenue-based financing (also sometimes called “merchant cash advance”) would not be subject to the MBA. Adding this new definition of “loan” to the MBA creates significant risk that alternative forms of business financing will become subject to the regulatory burdens impose by MBA.
Those burdens are significant. The MBA requires money brokers to obtain a license from the North Dakota Department of Financial Institutions (“DFI”). The MBA also caps the maximum amount of fees and charges that can be impose by a money broker at a rate of 36% per year.
With this new definition, the North Dakota Department of Financial Institutions (“DFI”) can now issue an order designating any financing product as a loan subject to the MBA. Does the DFI intend to regulate revenue-based financing? That’s unknown at this time. The Commissioner of Financial Institutions provided a memorandum to the legislature stating that the new definition would allow DFI to ensure that North Dakota’s citizens “will have access to new lending products, without sacrificing safeguards”. It is possible that the Commissioner is intending to focus on consumer financing products and not commercial financing. Even if that’s the case, that’s small comfort.
There is still a problem with this law because the first sentence of the definition is simply too broad. It states that a “loan” includes a transaction with the following two features:
1. There is a contract by which a sum of money is delivered to another.
- A typical revenue-based financing is structured as a purchase of a merchant’s future revenue at a discounted purchase price. The purchase price is a sum of money delivered to the merchant.
- Invoice factoring transactions also involve a delivery of funds in the amount of the face value of the invoice minus a discount and/or a reserve.
2. At a future time, the person receiving that money agrees to return an “equivalent” sum.
- In revenue-based financing, the merchant agrees to deliver the purchased amount based on an agreed-upon percentage of the merchant’s revenue stream. Arguably this is a “sum of money” equivalent to the purchase price advanced to the merchant.
- Factoring is a bit more complicated. In recourse factoring, a factoring client sometimes is required to repurchase an invoice from the factor if the invoice is not paid on time. The repurchase price is based on the face value of the invoice. Arguably this is a “sum of money” equivalent to the face value of the invoice minus a discount and/or a reserve.
Even if the DFI does not order that revenue-based financing or factoring are loans, a North Dakota court could take the position that the definition of “loan” is now so broad that these products are already loans under the revised MBA. No DFI order is needed.
If a North Dakota court concludes these products are now subject to regulation under the MBA, including its 36% rate cap, then this opens the door for North Dakota businesses that obtain financing to sue any provider that imposes charges that effectively exceed that rate cap.
It’s not clear whether the North Dakota legislature understands what it just did. This amendment was part of a legislative package that was primarily focused on data security. The addition of the “loan” definition would be difficult to find if you weren’t looking for it. House Bill 1127 passed with almost unanimous support. Did all those legislators understand that this law could drive away products that offer working capital to businesses that badly need liquidity and don’t have access to a bank line of credit? I doubt it.
Does this mean that providers of alternative financing should stop funding in North Dakota? That’s a business decision. We’ll certainly be watching to see if the DFI provides any guidance on any kind of “alternative financing” product it considers to be a loan. But providers of revenue-based financing and factoring should start thinking about whether they might need an MBA license North Dakota and whether they can live with the MBA’s 36% rate cap.
According to the North Dakota legislature’s website, this change in the MBA is likely to take effect on August 1, 2025. That gives you some time to think about whether North Dakota is still a viable market for your financial products.
Shopify Continues to Grow its Merchant Funding Business
May 8, 2025“We continue to grow our capital business and have recently introduced several product innovations that give merchants more choice for how they manage their loans, and how they choose among various loan options,” said Jeff Hoffmeister, CFO of Shopify during the Q1 earnings call.
The company had ~$1.4B in business loan & merchant cash advance receivables on its balance sheet as of March 31, 2025. It purchased & originated $805M worth of business loans in Q1, putting it on pace to surpass the $3B total for all of 2024.
“Shopify Capital is a financing program that offers merchant cash advances and loans to eligible businesses based on the store’s location, history, use and interaction with the Shopify platform,” the company states. It is offered in the US, Australia, Canada, and the UK.
How to Prepare for Outside Syndicators
April 29, 2025David Roitblat is the founder and CEO of Better Accounting Solutions, an accounting firm based in New York City, and a leading authority in specialized accounting for merchant cash advance companies.
To connect with David, email david@betteraccountingsolutions.com.
There’s a clear gap of knowledge in our industry, and how merchant cash advance businesses need to prepare themselves to receive outside money in investment or syndication.
Whether you’re seeking your first institutional investment or scaling to eight-figure funding rounds, the preparation required isn’t just about having good portfolio performance—it’s about having the financial infrastructure responsible investors need to see before forking over money to you. Not knowing how to prepare that for them can cost you months of delays or even kill promising funding opportunities entirely.
I’ve seen too many MCA shops operating under a misconception. They believe that the impressive Google Sheets presentation showing their advance volume, daily collection rates, and merchant performance will be sufficient when courting serious investors.
Sometimes that’s enough. When you’re looking to raise money from friends and family, you have flexibility. These investors typically accept basic performance reports showing advance volume and collection rates, might not request detailed merchant-level financials, and generally won’t demand formal audits. Basic spreadsheets might suffice at this stage when you’re raising up to about $1 million in capital to fund your advances.
The financial documentation requirements escalate dramatically when you need more than that.
Once you move beyond self-funding or friends and family money into the realm of raising $5-10 million or more, investors won’t accept your homegrown reporting systems or month-end bundle accounting—they want audited financials and proper transaction-level documentation.
Sophisticated syndicators expect a professional CRM system tracking all merchant relationships, detailed default modeling, GAAP-compliant accounting systems that properly account for income recognition on merchant advances, and as investment amounts increase, audited financials become non-negotiable.
Auditors don’t accept shortcuts in the MCA space. They require transaction-level detail with recognized income on each advance, estimated defaults by cohort, and precise documentation of collection performance. They’re specifically looking for attempts to bundle or obscure individual merchant performance – a common practice in some MCA shops that raises immediate concerns with institutional investors.
Here’s what most MCA operators don’t realize: Getting your books audit-ready isn’t a quick fix. It’s a process that can take several months to update historical advance and collection records, 3-4 months for a first-time audit (always longer than subsequent audits), and additional time for any remediation of collection documentation. In total, you’re looking at potentially 9-12 months from financial disarray to audited statements. That’s an eternity in the fast-moving MCA world when a funding opportunity appears.
If you even think you might seek significant outside capital within the next year, start preparing now. Implement proper merchant tracking systems immediately. Ensure all bookkeeping follows GAAP principles for advance recognition. Consider getting audited financials before you need them.
Yes, this requires upfront investment, but put it in perspective: If you’re raising $5 million to fund your advance portfolio (often just the starting point), the cost of proper financial infrastructure is minimal compared to the capital you’ll secure and the acceleration in your timeline.
The most successful capital raises in the MCA industry aren’t just about having a great portfolio performance – they’re about being ready when opportunity knocks. Don’t be the MCA provider explaining to eager investors why they need to wait a year while you get your advance and collection records in order. The most valuable asset in fundraising isn’t just your merchant performance – it’s being prepared to prove it immediately.
Eight Individuals Arrested by FBI in Small Business Loan Carroting Scam
April 18, 2025
Eight individuals have been arrested by the FBI and charged in connection with a scheme to defraud small business owners out of millions of dollars by charging them money in return for a promise of a large line of credit that would never come.
The individuals charged include: Joseph Rosenthal, Matthew Robertson, Nicholas Smith, James Missry, Paul Cotogno, Blaise Cotogno, Adam Akel, and Nicholas Winter.
As part of the alleged conspiracy the group used the following domain names: oakcapitalgrp.com, oldbridgefunding.com, wsfcap.com, opticapitalgrp.net, and more.
In addition, they used company names and entities that include: Clover Advance Group LLC, FFCG LLC, Advance Source Capital Group dba ASF Capital, WSF Capital Group, Forward Advance LLC, Delta Fund Grp, Oak Capital Grp, United Front Capital, Quick Call Capital, Pine Equities, D&D Equities, ASC Group LLC, and Old Bridge Funding.
“For some victims, the Defendants sent some of the Defendants’ funds to bank accounts provided by the victim,” the criminal complaint states. “The victim was instructed to then repay that same money back to the Defendants over several days, which would in turn improve the victim’s credit score, making the victim more credit-worthy. Further, to secure the loan or line of credit, the victims were required to make a larger, one-time payment comprised of the victim’s own money, which the Defendants typically referred to as a balloon payment. Once the Defendants had recouped their own funds and obtained the victim’s own money via the balloon payment, the Defendants did not extend financing to the victim. Instead, the Defendants kept the victim’s money and broke off communication with the victim.”
The scam had been going on for almost four years, according to the criminal complaint. Several of the names listed above had circulated on an industry message board as likely being involved in a bait and switch LOC fraud scheme.
“These defendants perpetrated a years’ long scheme to defraud hard-working business owners in New Jersey and across the United States, stealing millions of dollars from thousands of victims,” said U.S. Attorney Alina Habba. “These charges reflect our Office’s commitment to holding accountable those who prey on small business owners trying to support their communities and earn a decent living.”
Why MCA Companies Need Syndicators
March 21, 2025David Roitblat is the founder and CEO of Better Accounting Solutions, an accounting firm based in New York City, and a leading authority in specialized accounting for merchant cash advance companies. To connect with David or schedule a call about working with Better Accounting Solutions, email david@betteraccountingsolutions.com.
The merchant cash advance (MCA) business is all about balance—managing risk while keeping capital flowing.
Many funders hesitate to bring in outside capital, especially if they already have a line of credit. The thinking goes: “If I have my own money, why should I split the profits?” But that perspective overlooks the key benefits syndication brings—not just in terms of capital but also risk mitigation and overall profitability.
The biggest advantage of working with syndicators is the ability to do more deals while spreading out risk. The more deals you fund, the more you diversify, which naturally increases your stability. If you’re advancing your own money, you’re taking on 100% of the risk. But with syndicators, that exposure is shared. Even if you already have a line of credit, using syndication means you’re not tying up all your liquidity in a few high-risk advances. Instead, you’re spreading your capital across more opportunities, reducing the chances of any single deal tanking your portfolio.
Syndication also creates a financial buffer through fees that MCA companies collect upfront. Syndicators don’t just bring in money; they pay to participate in your deals. Typically, they compensate the funder in one of four ways: paying an upfront fee (usually 3-5% of the RTR or 5-7% of the principal), paying part of the fee upfront and the rest as the deal is repaid, covering a portion of the origination fee, or splitting the profits at the end of the deal. These fees give MCA companies immediate cash flow, which helps offset risk before repayment even begins.
Consider this: if you fund a $100,000 deal and syndicators take on 50% of it while paying a 4% fee, you’ve immediately reduced your exposure. You’re technically in for only 48% of the deal, not 50%, because that fee cushions your position. On a larger scale, this compounds into significant risk reduction. If your default rate is 15% and syndication lowers your risk by just 5%, that’s a major improvement. A 10% default rate instead of 15% can be the difference between profitability and loss.
Origination fees further sweeten the deal. Some MCA companies split origination fees with syndicators, while others keep the entire portion from the syndicator’s investment. For example, in a $200,000 advance where the syndicator puts in $100,000, a 10% origination fee would total $20,000. If the funder keeps the entire 10% from the syndicator’s portion, that’s $10,000 of instant income—reducing risk right away. This means that even before payments start coming in, the MCA company is in a stronger position.
Profit-sharing models also offer advantages, particularly for MCA companies that want to keep more control over the deal structure. In these setups, syndicators don’t pay an upfront fee but instead share in the profits at the end. This allows funders to leverage external capital while still maintaining higher margins on successful advances. Some models even combine a profit split with an upfront syndication fee, offering the best of both worlds—immediate cash flow and long-term upside.
The bottom line is simple: syndication makes MCA portfolios stronger. It adds a layer of protection, reduces risk, increases deal volume, and injects capital upfront. A stronger, more diversified portfolio leads to more stability and, ultimately, higher long-term earnings.
For any MCA company serious about growth and sustainability, working with syndicators isn’t just an option—it’s a necessity. Overlooking these benefits in the name of not wanting to share profits shows a short-term mindset that may cost more in the future.
How AI is Scaling a Veteran Small Business Financing Brokerage to New Heights
March 19, 2025
“There are [AI] voice systems out there that have just blown me away,” said Cheryl Tibbs, owner of Atlanta-based Commercial Capital Connect. “So we are using those and I’m implementing some in my office in my day to day—we have an AI receptionist that answers the phone, it just frees up time.”
As a broker, Tibbs recognizes the value of being able to answer a potential client anytime, anywhere, but there needs to be time to sleep, train others, and expand as well. And thanks to the advent of actual AI, it’s now become increasingly possible to scale on multiple fronts where it wasn’t before. Tibbs told AltFinanceDaily that she’s been using AI to duplicate herself across anything she can.
“So we train these models on everything about our business, everything about us, and it can just answer questions, either through chat or having a conversation,” she said.
AI can call leads or qualify a customer through online chat at three in the morning if need be—not theoretically; it’s doing it for her already.
“Some mornings I wake up, I see full conversations between the conversational AI and somebody that filled out a lead form,” she said. “The chat agent has the ability to send them a text message with our full application link, or book them on our calendar.”
But more customers coming in the door means more questions from her team about where to place a deal. She’s got a solution for that, a bot she created named BrokerBuddy that can answer on her behalf when she’s not available to do it herself.
“I trained it on most of the lender guidelines that we work with, so they can just go in and just type a question, you know, ‘hey, BrokerBuddy, I’ve got a customer with a 680 FICO score.’ He says, ‘two years time in business, looking to buy a $40,000 skid steer. What else should I ask him? Which lender in our organization do you think will do this deal?'”
There’s a role for AI to just skip the questions and place a deal all by itself using advanced algorithms, something many tech companies tout these days, but the human nuance is a key component to her service, since any deal could be equipment financing, SBA, or working capital rather than solely one thing. It’s not always immediately obvious which one it’s going to be or what the customer would prefer. Way back in the day, Tibbs started purely with MCAs, back when they could only be done via a credit card machine. Since then she added equipment financing, working capital loans, and SBAs. For a long time now, she’s offered it all. She pairs up customers with the best fit and relies on her knowledge and relationships to know what’s going to work and what’s not.
“SBA is a hot button right now and merchants are really excited to know that this is definitely a possibility,” Tibbs said.
One opportunity with SBAs in particular is to consolidate MCAs, which, if the business owners qualify, can have a tremendous impact. Sometimes these business owners find her by seeing her posts online, and they reach out. Maybe it’s her they’ll get right away, or maybe it’s her AI. In any case, all of her experience has long since led other brokers to refer their own business to her, since she has a reputation for being able to get the deals done.
“I’ve been operating as a super broker most of the 20 to 25 years that I’ve been in this alternative space,” she said, “and as a super broker, I’m able to offer my broker partners more stuff than they even thought about. […] I study this stuff. I eat, live, and breathe it.”
While it’s unclear if AI qualifies as alive, her band of automated agents are beginning to breathe the rush of it all right alongside her. So many brokers (and lenders) are diversifying their product sets that her referral business is escalating, and she wouldn’t be able to scale without the assistance.
“Even though we get appointments, if we’re not on the phone with that merchant usually within three to five minutes, sometimes it’s hard to get them back on the phone. And even if they make an appointment, they may not show up. Having that instant engagement it definitely helps.”
Broker Battle 2025 Champions
February 24, 2025Broker Battle 2025 took place at the Fontainebleau on February 20th during AltFinanceDaily CONNECT MIAMI. Video highlights and more will be available soon. In the meantime, here are the results and the top brokers:
Revenue Based Financing
Top Broker: Ryan Showe, Lexington Capital Holdings
Runner-up: Joe Sasson, Advance Funds Network
Equipment Financing
Top Broker: Mike Brooks, Best Connect Capital
Runner-up: Yaro Yarema, Capital MBS
