The Dangers of MCAs

Merchant cash advances were supposed to help small businesses survive. Instead, they've become one of the fastest routes to bankruptcy. Here's what you need to know — and what to do instead.

A Bloomberg investigation just put a number on something business owners already know

In February 2026, Bloomberg Law published a detailed investigation into merchant cash advances (MCAs) and their growing role in small business bankruptcies. The findings were stark.

Bankruptcy cases listing MCA funders as major creditors surged in 2023 and peaked in 2025 with over 230 filings — concentrated heavily in Florida and Texas, but spread across more than half of all US federal districts. One Florida land clearing company entered Chapter 11 having taken out 21 separate MCA deals totalling over $3.6 million. A Subway franchise with 43 stores went bankrupt owing $1.4 million from a single MCA with what the court described as a 94% annualised return rate.

"I can't think of a case in a long time where I haven't seen them. And nobody has just one. They all have multiple." — Kathleen DiSanto, bankruptcy trustee, Florida

Source: Merchant Cash Advances Piling Up in Small Business Bankruptcies — Bloomberg Law, Feb. 24, 2026

This isn't a fringe problem. Bloomberg Law estimates the US MCA market at around $20 billion, with projections to exceed $30 billion in the near future. For lenders, that's a growth story. For the small businesses on the other end, it's often a debt trap.

So what exactly is a merchant cash advance?

An MCA isn't technically a loan — and that distinction is exactly how providers stay out of reach of most consumer and commercial lending regulations.

Here's how it works: a funder gives you a lump sum today in exchange for a percentage of your future revenue — typically collected daily or weekly direct from your card sales or bank account. The amount you repay is determined by a 'factor rate,' usually somewhere between 1.1 and 1.5. So if you receive $100,000 at a factor rate of 1.4, you owe $140,000 back — regardless of how long repayment takes.

Because it's structured as a purchase of future receivables rather than a loan, the funder doesn't have to disclose an interest rate. But the real-world cost can be extraordinary.

Real cost example: A $100K advance at a 1.4 factor rate, repaid over 8 months, equates to roughly 85–100% APR. Some arrangements reach 200% or more.

The Bloomberg Law report notes that factor rates typically sit between 1.1 and 1.5 — and that in some cases the effective annual rate hits 100% or even 200%. That's not predatory in the theoretical sense. It's predatory in the documented, court-filing, bankruptcy-trustee sense.

Why businesses keep taking them anyway

MCAs are deliberately designed to be easy to get. Approval can happen in hours. There's no lengthy application, no business plan required, no collateral needed. For a business owner staring at payroll on a Thursday, that speed feels like a lifeline.

The problem is what comes next.

Because repayments are taken daily, cash flow tightens immediately. A business that was barely keeping up before the advance now has less working capital than it started with — just with a large debt attached. The natural response, as the Bloomberg Law piece documents, is to take out another advance to cover the gap.

"Debtors are using these MCAs as sort of their last Hail Mary to stay out of bankruptcy." — Daniel Etlinger, bankruptcy attorney, Tampa

This pattern — known as 'stacking' — is where businesses end up with four, five, or twenty-one MCA agreements running concurrently, all taking daily cuts of revenue that no longer exists. By the time a business owner realises they're in trouble, the hole is too deep to dig out of without court protection.

The regulatory gap that makes all of this legal

Because MCAs are classified as the purchase of future receivables — not loans — they sit outside most of the consumer and commercial lending protections that exist in the US. That means:

• No interest rate cap

• No standardised eligibility criteria

• No cooling-off period

• No obligation to assess affordability

• No APR disclosure requirement

Funders have aggressively advertised on social media — particularly targeting small businesses in distress — with messaging focused on speed and simplicity. The Bloomberg Law investigation notes that this expansion accelerated sharply after the pandemic as government relief dried up and bank lending remained tight.

Some courts have started pushing back. Judges in Florida and Texas have recharacterised MCAs as loans in bankruptcy proceedings, finding that the 'purchase of future revenues' framing doesn't hold up when the funder can demand repayment regardless of whether revenue actually comes in. But as one attorney quoted in the Bloomberg piece puts it: this outcome isn't universal or automatic.

Regulation is coming — but slowly. Education is the more immediate protection.

What good business lending actually looks like

The conditions that make MCAs appealing — speed, accessibility, no collateral — are real needs. Small businesses do need capital quickly. They often can't wait three months for a bank decision. They don't always have property to pledge as security.

But those needs don't require a 100% APR. They require a lender who understands small business, and a broker who knows how to present one.

Here's how Frank is different:

Regulated lending only. Frank works exclusively with licensed lenders — banks, non-bank lenders, and SBA-approved institutions — who are required to disclose rates and terms clearly. No factor rates. No hidden costs. No daily revenue sweeps.

• Real rates from 6–9% p.a. Business term loans, equipment finance, unsecured loans, and lines of credit — all priced at rates that reflect what your business is actually worth, not what desperation will tolerate.

• Free for business owners. Frank is paid by the lender, only when your funding is arranged. There are no broker fees, no upfront costs, and no obligation to proceed after you see your options.

• Same speed, better terms. Frank can get most businesses a same-day decision and funding within 2–5 days. That's the MCA timeline, without the MCA terms.

• Frank does the work. Most business owners turn to MCAs because they don't know how to navigate lenders — or assume they won't qualify. Frank builds your application, presents it to the right lenders, and manages the process to funded. That's the job.

MCA vs Frank: the numbers that matter

Merchant Cash Advance: $100K advance · Factor rate 1.4 · Repay $140K in 8 months · Effective APR ~100% · Daily revenue sweep · No regulatory protection · Defaulting triggers aggressive collection

Frank (Business Term Loan): $100K loan · Rate from 9% p.a. · Repay ~$109K over 12 months · Fixed monthly repayment · Fully regulated · No penalty for early repayment · Frank manages the lender relationship for you

If you've been offered an MCA — pause. The speed is real. The cost is also real, and most business owners don't fully understand it until the daily repayments start hitting and cash flow collapses.

Before you sign anything, find out what you'd actually qualify for through a regulated lender. It takes three minutes with Frank. You'll see real options, real rates, and a clear comparison — with no obligation to proceed.

If you already have MCA debt and you're struggling to stay on top of it, the Bloomberg Law article makes clear that bankruptcy attorneys are seeing this pattern constantly. It may also be worth speaking to a financial advisor about your options before taking on more.

Frank exists because small businesses deserve better than a 100% APR and a daily revenue sweep. Let us show you what's actually available to you.