Why Banks Won't Fund Payday and Title Lenders, and Where Capital Comes From

By MercFinancial · Published 2026-10-21

Banks will not fund payday and title lenders on regulatory and reputational policy, and the SBA excludes lending businesses. Capital comes from lender-finance firms, private credit and private investors underwriting the portfolio.

Banks will not fund payday and title lenders because of regulatory risk, reputational policy and a decade of federal de-risking, and the SBA cannot, because 13 CFR 120.110(b) excludes businesses primarily engaged in lending. The capital for these consumer lenders comes instead from specialty lender-finance companies, private credit funds and private investors who underwrite the loan portfolio, the licenses and the compliance program rather than the industry's name.

This guide covers the regulatory frame in hedged terms, how bank de-risking turned a credit decision into a policy decision, where payday and title lenders actually raise senior and subordinated capital, what those funding sources underwrite in place of reputation, and the file that gets a storefront lender funded. It closes with how MercFinancial places a payday or title lender request, including the honest answer when nothing fits.

The bank's decline letter is about the bank's regulator. The private lender's term sheet is about your loan tape.

The regulatory frame, in hedged terms

Short-term consumer lending has been rewritten by regulators more than once in the past decade. The Consumer Financial Protection Bureau issued a payday lending rule in 2017, rescinded its mandatory underwriting provisions in 2020, and defended the remaining payment provisions through litigation. As of this writing those payment provisions are in effect, the Bureau announced in March 2025 that it would not prioritize enforcement of penalties under them, and a proposal to reconsider the rule sits on its 2026 agenda. Nothing in this guide predicts where that ends. A number of states cap small-loan rates at levels that make the payday and title model unworkable there, and some prohibit title lending outright. The Military Lending Act caps the cost of credit to active-duty servicemembers and their dependents whatever state law allows.

Texas is an example of how state structure shapes the business. Many Texas storefronts operate as credit access businesses under Chapter 393 of the Finance Code, arranging loans from an unaffiliated third-party lender and charging their own fee, rather than lending under the regulated lender chapter. To a funding source, that detail decides whether the storefront's asset is a loan portfolio or a stream of fees, and it changes the facility. The rest of the series on consumer finance company funding assumes a portfolio. This guide is about the lenders regulators watch most closely.

Bank de-risking: how a credit decision became a policy decision

In the early 2010s a federal enforcement initiative pressed banks to scrutinize payment-processing and deposit relationships with industries the government considered high risk, and payday lending was on the list. Banks closed accounts rather than carry the examiner attention, and the habit outlived the initiative. Today most bank credit policies exclude finance companies as a category, examiners still review a bank's concentration in high-risk customers, and a line of credit to a payday lender is the kind of exposure a bank's board does not want to explain. Several large online lenders list financial institutions and lenders among restricted industries, so the fast products are closed as well.

None of that is a reading of your file. A bank that declines a title lender has usually not opened the loan tape, because its policy told it not to. The decision is reputational and regulatory, which is why it does not change when the portfolio performs. It changes only when the request goes to a funding source whose own regulators, investors and bank are comfortable with the category, and those funding sources exist.

Where the capital actually comes from

• Specialty lender-finance companies. They lend to lenders through a senior secured revolver against eligible receivables with a borrowing base. Some have written payday and title books for years, others exclude single-payment products, and most have minimum facility sizes.
• Private credit funds. Larger facilities for multi-state chains, with tighter covenants, more reporting and a field exam before closing.
• Subordinated notes from private investors. The common first capital for a small chain: high-net-worth investors and family offices buying notes that sit behind any senior lender under an intercreditor agreement. The notes are securities, and the offering needs counsel.
• Whole-loan and forward-flow buyers. More common for installment and auto paper than for single-payment loans, and a way to fund growth without a balance sheet.
• The third-party lender in a credit access model. Where the storefront arranges loans it does not fund, the capital is the lender's. The storefront then finances its own operations with unsecured business loans on the owner's credit, real estate and equipment, not a portfolio line.
• Real estate and equipment lenders on the storefronts. A sale-leaseback of owned locations, and financing on signage, safes and systems, from lenders for whom the building or the equipment is the collateral.

The full stack for a company that holds its loans is laid out in financing for consumer finance companies. Title lenders also share underwriting with auto finance, and the recovery metrics in the guide to buy here pay here and auto finance capital apply to a title book.

What those funding sources underwrite instead of reputation

The file that gets a payday or title lender funded

• Reviewed or audited financial statements and two years of tax returns.
• The loan tape and static pool reports by vintage.
• Licenses and examination reports for every state of operation.
• Compliance policies, the complaint log, and litigation and regulatory history, closed matters included.
• A letter from the current depository bank confirming the relationship.
• Principal backgrounds and personal financial statements.
• An equity cushion the senior lender can measure, with any subordinated notes and their intercreditor terms.

The mistakes are the mirror image. Applying to banks and large online lenders adds declines to the file with no chance of approval. Presenting fee income from a credit access model as a loan portfolio misdescribes the asset. Treating the federal rule's status as settled in either direction, or omitting a regulatory matter that diligence will find anyway, costs more credibility than the matter itself. Sub notes without subordination terms the senior lender has approved stall the closing. A general view of what lenders review on a business loan still applies, with the loan tape added on top.

Where MercFinancial fits

MercFinancial is a commercial funding brokerage in Houston, not a lender, and the set of funding sources that will read a payday or title portfolio is narrower than for any other consumer lender. Some exclude single-payment products outright. MercFinancial reads the file first, identifies among more than 160 wholesale and institutional funding sources the ones whose policy allows the category and the structure requested, places one file with those sources, and compares the offers. Availability depends on the funding source, and when nothing fits for the portfolio a specialist says so plainly and points to what does fit, which is often the real estate, the equipment or the owner's own credit. Stephanie, the AI lending assistant, pre-qualifies in two to three minutes with a soft credit pull, and a free 30-minute call with a funding specialist is the next step.

Frequently Asked Questions

Can a payday loan company get a business loan?

Not from a bank or the SBA, and rarely from a large online lender. Banks exclude payday lenders on policy after a decade of de-risking, the SBA excludes businesses primarily engaged in lending, and online lenders list lenders as restricted. Capital comes from specialty lender-finance companies, private credit funds and subordinated notes from private investors, all underwriting the loan portfolio and the compliance file.

Why do banks close accounts for payday lenders?

Because of examiner scrutiny of high-risk customer categories and the reputational exposure that followed a federal initiative in the early 2010s pressing banks on their payday relationships. Many banks concluded that the compliance work and the attention were not worth the deposits, and the exclusions written into policy then remain in place, regardless of how a particular lender performs.

How do title loan companies get funding?

Through a senior secured line from a specialty lender-finance company or private credit fund against the title loan receivables, sized by a borrowing base and underwritten on repossession and recovery data, with subordinated notes from private investors and owner equity beneath it. Owned storefronts can be financed or sold and leased back, and equipment lenders fund signage and systems.

Is the CFPB payday lending rule still in effect?

Partly, as of this writing. The mandatory underwriting provisions were rescinded in 2020, the payment provisions took effect in 2025 after litigation, the Bureau said in March 2025 that it would not prioritize enforcing penalties under them, and a proposal to reconsider the rule is on its 2026 agenda. Funding sources expect compliance with whatever is in force and do not price on predictions.

Can a payday lender get an SBA loan?

No. Under 13 CFR 120.110(b), businesses primarily engaged in lending are ineligible for SBA financing, and a payday or title lender is such a business by definition. That is a rule, not a lender's policy, so no SBA lender can make the exception. The alternatives are the private lender-finance market, subordinated notes, and loans secured by the stores' real estate or equipment.

MercFinancial is a commercial funding brokerage in Houston, Texas. MercFinancial is a broker, not a lender: every loan is made by a third-party funding source, every request is subject to that source's underwriting and credit approval, and loan amounts, advance rates, interest rates, terms, fees, collateral and guaranty requirements vary by funding source and borrower and are not guaranteed. Nothing here is a commitment to lend or an offer of credit, and financing is for business purposes only. Any example in this guide is hypothetical and illustrative; actual terms and outcomes vary. Businesses primarily engaged in lending are ineligible for SBA financing under 13 CFR 120.110(b); consumer lenders are licensed and regulated by each state and subject to federal consumer-financial law; financing availability depends on the funding source's policies. This guide is educational only and is not legal, tax, accounting or investment advice.