When it comes to lending money in Texas even for business purposes there are firm limits on what you can charge in interest. While it might be tempting to think that business-to-business lending operates in a “free market,” Texas law sets clear boundaries. Understanding those rules can help prevent costly legal missteps and ensure any lending arrangement stays on the right side of the law.
What Is Usury in Texas?
Usury refers to charging an illegally high interest rate on a loan. In Texas, the foundation for usury law comes straight from the Texas Constitution. Article 16, Section 11 declares that, unless otherwise allowed by law, any contract charging over 10% interest per year is considered usurious. If no interest rate is mentioned, the legal default is 6%.
This sets a constitutional floor, but there are additional and more detailed rules in the Texas Finance Code. For example, Section 303.001 of the Finance Code generally caps interest rates at 18% annually unless exceptions apply.
Business Loans Are Not Exempt
Unlike many other states, Texas applies usury laws not only to consumer loans but also to commercial loans. That’s right even if you’re loaning money to a business or entrepreneur, you’re still bound by maximum interest rate laws.
According to the Texas Finance Code, a commercial loan defined as a loan made primarily for business, commercial, investment, agricultural, or similar purposes can sometimes be charged a higher interest rate than consumer loans. These commercial rates may float with inflation, up to 24% annually, or even 28% for loans exceeding $250,000.
So while commercial lending offers more flexibility, it is absolutely not a lawless zone.
Beware of “Disguised” Loans
A common mistake lenders make is trying to sidestep usury laws by disguising a loan as something else such as a sale, investment, or partnership. However, courts look at the substance over form. If it walks like a loan and talks like a loan, it’s a loan. Even if you never use the word "loan" or "interest," charging someone a fixed return like demanding $2 million back on a $1 million "investment" in one year can still be ruled as usurious.
Violations of usury laws can lead to penalties, including forfeiture of interest, refund of overcharges, and even treble damages in some cases. Lenders should consult an attorney to ensure any financial arrangements comply with the law.
Final Thoughts
Texas might be known for its business-friendly climate, but it also fiercely protects borrowers—even in commercial settings. Whether you’re lending $10,000 or $1 million, knowing the legal interest limits and structuring your agreements accordingly is critical.
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