An increasing number of small businesses are turning to merchant cash advances (MCAs) for financing, despite the risks associated with these arrangements, according to industry surveys and recent cases. Last year, 12% of small businesses applying for funding opted for MCAs, up from 9% in 2024, reflecting a growing reliance on this form of capital amid tighter credit conditions.
MCAs provide quick access to cash by advancing funds to businesses in exchange for a percentage of future credit card sales or daily withdrawals from bank accounts. However, the high costs and aggressive repayment structures tied to these advances have left many firms struggling to meet obligations, leading to increased bankruptcies and business closures.
Triways Trucking, a California-based company, exemplifies the challenges businesses face with MCAs. Owner Rafael Jauregui first resorted to cash advances in late 2023 after conventional lenders declined additional credit. Initially intending to repay the six-figure advance swiftly, Triways instead took out more than 30 MCAs over two-and-a-half years to cover operational expenses and a new Navy contract. The frequent, automatic withdrawals left little cash for payroll and other costs, prompting missed rent payments and mounting debts that eventually pushed the company toward bankruptcy.
In April 2026, Triways filed for Chapter 11 reorganization, citing monthly MCA payments of $250,000 and liabilities exceeding $6.8 million, including more than $1.2 million owed to MCA funders. The case was dismissed in June after the company failed to maintain workers’ compensation insurance and missed payroll obligations. Triways ceased operations in September. Since then, MCA funders have pursued default judgments for hundreds of thousands of dollars against the business.
Many MCA products have effective annual percentage rates that far exceed traditional loans, sometimes reaching into the triple digits or beyond. Triways disclosed one MCA with an estimated APR of 2,190%. Unlike conventional lenders, MCA funders do not classify these transactions as loans and therefore are not subject to the same regulatory oversight. They withdraw payments directly from bank accounts daily or weekly, which can exacerbate cash flow problems.
Legal scrutiny of MCAs has increased, with some states enacting laws requiring clearer disclosures and licensing of brokers and funders. In 2025, New York Attorney General Letitia James secured a $1 billion settlement against Yellowstone Capital for allegedly disguising high-interest loans as MCAs. Meanwhile, bankruptcy attorneys report that MCA funders often appear as creditors in a majority of small-business bankruptcy filings, sometimes without offering repayment arrangements to keep businesses operational.
Advocates for small businesses warn that relying on MCAs as a recurring source of financing can be financially damaging. “Don’t use an MCA as a line of credit. That’s a recipe for disaster,” said Michael Dal Lago, a bankruptcy attorney. The industry’s business model relies on high charges and aggressive collections, meaning funders only need a fraction of their contracts to be repaid to remain profitable, according to legal experts.
Trade associations representing MCA funders acknowledge concerns over predatory practices and emphasize the importance of alternative financing options for businesses unable to secure traditional bank loans. The Small Business Finance Association, accounting for an estimated $20 billion MCA market, has taken steps to identify and eliminate abusive behavior among its members.
As small businesses continue to face inflationary pressures, increased costs, and limited access to credit, the prevalence of MCAs is expected to grow. However, the experience of companies like Triways highlights the potential hazards that come with quick capital solutions that often carry heavy financial consequences.