Two Senators Say the SBA Is Trapping Small Businesses in MCA Debt — But Is the Full Picture That Simple?
- F.I. Editorial Team
- 12 hours ago
- 4 min read
Senators Ed Markey (D-Mass.) and Ron Wyden (D-Ore.) are demanding answers from the SBA over a June 2025 rule change that eliminated SBA loan refinancing of merchant cash advance debt, a move they say traps tariff-battered small businesses in predatory financing with no way out. But the MCA and revenue-based financing industry tells a different story: one where billions of dollars in fast, flexible capital reaches businesses that banks won’t touch. Here’s what both sides are saying, and what the numbers actually show.
What Happened
In a letter made public in May, Senators Markey and Wyden accused the Small Business Administration of leaving small businesses exposed to what they called predatory merchant cash advances, products they compared to “payday loans for businesses.”
Their complaint centers on two issues.
First, the SBA failed to warn businesses about the risks of MCAs as tariff-driven cost shocks sent owners scrambling for capital.
Second, and more consequentially, a June 2025 SBA rule change made MCA debt ineligible for refinancing through SBA-backed loans. Before that change, a business buried in expensive MCA obligations could potentially refinance into a lower-cost SBA loan. That door is now closed.
“This closes an essential escape route for small businesses trapped in spiraling MCA debt,” the senators wrote. They described a pattern where tariff-hit importers were “inundated with offers” for same-day cash through “nonstop calls, texts, and WhatsApp pitches” from MCA providers. According to the letter, businesses that took the bait found themselves in debt-stacking spirals, taking out new advances just to cover the daily withdrawals from existing ones.
The senators pointed to the New York Attorney General’s $1 billion settlement with Yellowstone Capital in January 2025 as evidence of industry-wide problems, noting that some MCA arrangements carry effective annual rates exceeding 800%.
The SBA did not respond to American Banker’s request for comment.
The Other Side of the Ledger
The senators’ letter paints with a broad brush. And while the worst actors in the MCA space deserve scrutiny, reducing an entire industry to its most extreme cases doesn’t serve the millions of small businesses that depend on this capital every year.
Here’s what the public data actually shows:
The global MCA and revenue-based financing market was estimated to be, by anyone's best estimate, roughly $20-$30 billion in 2025 and is projected to grow by a 20% rate by 2029. The largest players in this space aren’t the bad actors that dominate headlines; they’re publicly traded technology companies with transparent financials and massive scale.
Square Loans (Block, Inc.) funded $7 billion to merchants in 2025 alone. According to Block’s year-end report, the amount of loans identified as nonperforming was “immaterial.” Block has now provided over $200 billion in cumulative credit across its product suite, including more than $22 billion specifically through Square Loans to small businesses since inception.
PayPal Working Capital surpassed $30 billion in cumulative global small business loan originations as of March 2025, extending more than 1.4 million loans and cash advances to over 420,000 business accounts since 2013.
Shopify Capital has provided over $5.1 billion in merchant cash advances and loans to its merchants since launching in 2016, with advances ranging from $200 to $2 million and repayment tied directly to store sales.
These programs exist because traditional banks reject more than half of small business loan applications, and the ones they do approve take an average of 20 to 45 days to fund. MCAs and revenue-based financing products are typically approved and funded within 48 hours, and in many cases, the same day. For a business that needs to buy a new oven that just broke next Friday or stock inventory before a seasonal rush, three weeks of underwriting isn’t an option.
The revenue-based repayment model, where a fixed percentage of daily sales is remitted rather than a fixed monthly payment, is designed to flex with business performance. On a slow day, the business pays less. That’s a structural advantage over a fixed-payment loan when cash flow is uneven, which describes the reality for roughly 72% of small businesses globally. Many MCAs come with a daily or weekly fixed payment, but still are required to adjust the payments based on true sales upon customers' request.
Where Both Sides Have a Point
The senators aren’t wrong that bad actors exist. Stacking, where a business takes multiple concurrent MCAs and gets buried under overlapping daily withdrawals, is a real problem. Effective rates north of 100% exist at the bottom of the market. And aggressive, unregulated marketing from fly-by-night operators targeting desperate business owners is a legitimate concern that the industry itself has an interest in addressing.
But the solution isn’t to characterize the entire MCA and RBF industry as predatory. The solution is better regulation, better disclosure requirements, and yes, better refinancing options for businesses that need a way out of bad deals. Eliminating the SBA refinancing pathway doesn’t protect businesses from MCAs. It just removes the exit ramp for the ones already on the road.
The industry has its own work to do on transparency and self-regulation. But the core product, fast, flexible, revenue-based capital for small businesses that banks won’t serve, fills a gap that no Senate letter is going to close. The question isn’t whether MCAs should exist. It’s how to ensure the market works for the businesses it’s supposed to serve.
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