- 1Texas barred ACH debits by sales-based financers; Washington funds a state revenue-based financing program.
- 2Grow America's product carries a 20% holdback, a $1,000 monthly minimum and a three-year term.
- 3The piece argues payments tied to sales are now broadly accepted, whatever the legal label.
Two states took opposite stances on the same repayment model within months of each other. Texas moved to ban ACH debits by sales-based financing providers, while Washington launched a state-backed revenue-based financing program. An industry analysis argues the split exposes a bigger point: payments that rise and fall with sales have become the market's default, whatever the product is called.
Two states, two readings
The Texas analysis of the bill said this type of financing had raised predatory-lending concerns and noted judgments won by state attorneys general and the Federal Trade Commission. Washington, by contrast, framed sales-based financing as a way to widen access to capital for underserved and underbanked small businesses. Here are the earlier stories on the Texas ban and Washington's launch.
Washington's program is run through the state Department of Commerce with Grow America and is funded by a federal State Small Business Credit Initiative grant. Grow America's marketing says merchants pay more in strong months and less in slow ones, a pitch long associated with merchant cash advances.
How the Washington product works
The program applies a 20% holdback to adjusted monthly revenue, with a $1,000 minimum monthly payment if the holdback falls short. Approvals run from $50,000 to $1 million. It is marketed with a 1.24 factor rate, an estimated 14.27% APR and a three-year term, with a balloon payment due if the balance is not repaid by then.
The analysis notes that faster sales mean faster payoff, so a quickly repaid balance could produce an effective APR far above the estimate. It also argues that, unlike an MCA, a loan with a minimum payment and fixed term gives up the features that made the advance structure merchant-friendly: no minimum, no fixed term and no absolute repayment obligation.
GoDaddy, which recently announced an MCA program, uses almost identical language, saying repayment is faster when sales rise and slower when they dip. It advertises no minimum payment, no set schedule, no penalties and no late fees.
The market's verdict
The piece points to household-name platforms that offer sales-linked financing, as purchases or loans, including Amazon, Walmart, Shopify, Intuit, Stripe, DoorDash, PayPal, Square, GoDaddy, Wix and Squarespace. It adds that past wrongdoing has typically involved deceptive marketing or collections above the contracted amount, and that New York courts look for a reconciliation provision, a finite term and bankruptcy recourse when deciding whether a deal is a purchase.
Research is moving the same direction. A FinRegLab paper, Sharpening the Focus, found that adding cash-flow data substantially improves models that lean on owners' personal credit and firm characteristics. Square, described as the largest revenue-based financing provider in the U.S., says in a white paper that real-time business data supports its underwriting, with repayment averaging eight months and payments that scale with sales.
The author's conclusion: the question of how the market views payments tied to revenue has already been answered.
Source reporting: deBanked.
