News Stories

Early last year, we reported on the $1.4 billion lawsuit brought against Yellowstone Capital, now known as Delta Bridge Funding or Cloudfund.

If you recall, the company was sued by the New York Attorney General (NYAG) for disguising predatory loans as MCAs and then charging merchants as much as 820% interest per year. That’s more than 50 times the legal rate!

As a small business owner, sometimes you need extra business funding to keep operating smoothly. Merchant cash advances (MCAs) have become a popular source of fast business financing. Unlike typical bank loans, MCAs are typically repaid with future sales from credit card sales.

Unfortunately, they don’t have the same benefits and protections as a traditional small business loan. The high fees and tricky contracts associated with MCAs can threaten your business and finances if you aren’t careful.

In the dynamic world of small business, the holiday season represents both a tremendous opportunity and a significant challenge. As consumers open their wallets for festive spending, companies across various sectors scramble to capitalize on this surge in demand. However, preparing for this critical period often requires substantial upfront investment in inventory, staffing, and marketing – a financial burden that can strain even the most well-managed small business.

Any transaction that is financial in nature and has a mutual agreement in place has the ability to affect one’s credit through a default process if awarded by a judge. That being said, the MCA product itself is not usually reported to credit bureaus in the same manner as other financial products out there. The misconception of wrecking credit comes from brokers “shotgunning” applications out to funders who pull credit to review for eligibility. This practice has been curtailed over the past years. Continued education of business owners and the sophistication of alternative finance/fintech providers continues to provide the ability to shop around without exposing credit risk or personal information.

A sudden cash crunch can threaten any small business. Payroll may be due tomorrow, a bulk‑inventory discount might expire this afternoon, or a marketing campaign could require upfront spend. That’s where a merchant cash advance comes in.

A MCA promises fast relief—funds in forty‑eight hours, limited paperwork, and no personal credit check—yet the convenience often hides one of the highest borrowing costs in small‑business loans. Founders who sign without converting factor rates to annual percentage rates (APR) discover daily withdrawals draining the bank account before sales clear.

A merchant cash advance, otherwise known as an MCA, provides alternative funding for a business that suffers from credit issues and cannot go to its local banks. Unlike traditional small business loans, an MCA provider lends funds upfront in exchange for a piece of the company’s future sales and is not bound by laws that regulate lenders and limit interest.In the beginning, an MCA was only used for businesses that generated income through credit card sales, such as retail shops and restaurants. Nowadays, an MCA can be used for any type of business with advances anywhere from $5,000 up to $2 million. It is by far the fastest-growing industry in the past 10 years.

"There is an $87 billion gap in financing for small businesses," said Marina Linhart, CEO at Next Street. The firm advises cities, foundations, large institutions, lenders, and nonprofits that serve small businesses on how to do it better.

Undercapitalized companies have lower sales and profits, generate fewer jobs, and are more likely to fail. Evidence finds that women entrepreneurs are dissuaded from applying for credit, ask for less financing than men do, are approved less often, and pay more for credit. Key to closing the gap "is having access to the right form of capital in the appropriate amount that is needed." noted Linhart. "Alternative finance provides a very useful product for very specific circumstances for businesses."

The Merchant Cash Advance (MCA) market is witnessing unprecedented growth, signaling a significant shift in the alternative financing landscape for small and medium-sized enterprises (SMEs). MCAs, also called “Revenue Based Financing,” are a form of commercial financing where a business sells its future receipts in exchange for a lump sum, paid at a discount. A recent report on Yahoo Finance about Research and Markets Merchant Cash Advance Report 2024 reports that the MCA sector has experienced exponential expansion, driven by the increasing demand for flexible and accessible funding solutions.

Let’s begin with the formal explanation of a merchant cash advance (MCA) and a brief history. A merchant cash advance is simply a lump sum advance of funds from one party to another with a set payback amount. For example, a restaurant that receives $10,000 and agrees to pay back $13,000 from future revenue is a typical MCA. If this sounds a lot like a loan, you’re right. A difference without a distinction? Perhaps. That’s why a brief history and an explanation of the nuances is important.

Originally, merchant cash advances were paid back based upon a percentage of future revenue. By definition, the payback terms varied depending upon future earnings. This method was popular in the restaurant industry, among others, that had trouble securing funds from traditional banks and relied heavily on credit card sales. Take our example above, where a business owner received a $10,000 advance and agreed to pay back $13,000.