The Quiet Growth of Merchant Cash Advances

By Chloe Harvey

According to the latest Small Business Credit Survey conducted by the Federal Reserve, merchant cash advance usage among small businesses continues to rise.

The report found that 7% of businesses with fewer than 500 employees now use merchant cash advances on a regular basis, up from 6% the previous year.

More notably, among businesses actively seeking financing, 12% reported applying for an MCA product, compared to 9% the year prior. Approval rates also increased substantially. Nearly half of applicants reported receiving full approval.

At first glance, these numbers may simply appear to reflect growing adoption of alternative financing products. However, beneath the surface, they may point toward something much larger happening within the small business lending environment.

Many business owners pursuing MCAs are not necessarily weak businesses or “last resort” borrowers. In fact, a significant portion of the business owners we speak with are often substantially overqualified for the products they ultimately end up using.

In many cases:

- they were never properly pre-underwritten;

- they lacked visibility into institutional financing options;

- they were navigating urgent cash flow pressure;

- or they encountered fragmented broker environments prioritizing speed over sustainability.

The result is that many businesses enter high-cost financing arrangements without fully understanding their broader market position.

This is one of the reasons why diagnostics and underwriting transparency matter so much.

Business financing should not begin with pushing a product. It should begin with understanding:

- what the business actually qualifies for;

- what products fit the situation appropriately;

- what risks exist; and

- what alternatives may be available before expensive capital is introduced into the equation.

As regulatory scrutiny surrounding MCAs continues increasing nationwide, the broader conversation should not simply focus on whether these products exist. It should also focus on why so many businesses continue ending up there in the first place.

Sometimes the problem is not just the financing product itself.

Sometimes the problem is that nobody slowed down long enough to properly evaluate the client before placing them into it.