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Merchant Cash Advances Are the Symptom. What's the Diagnosis?

Reflections from the Fed's Small Business Symposium


Business owners are driving in a fog and hoping they don't hit a deer.


That was the image one panelist used at the Federal Reserve Bank of Cleveland's State of Small Business Symposium in June — and it's stuck with us since. It captures exactly what we see every day in our work researching merchant cash advances (MCAs) and deceptive lending: business owners moving fast, under pressure, reaching for whatever capital is closest at hand, often without a clear view of what's ahead.


We attended the symposium to hear directly from the ecosystem — Fed researchers, BSOs (business support organizations), community and regional banks, fintech leaders, and business owners themselves, drawn largely from the Midwest and East Coast. Three data presentations anchored the symposium, and we've pulled from all three below: Hal Martin's national outlook from the 2026 Small Business Credit Survey, Mike Eggleston's research on banking deserts, and Matthew Wagner's Main Street America data on what actually drives small business success.


Highlights at a Glance

  • 77% of small employer firms experienced a financial challenge tied to rising costs in the past year, and 42% specifically cited increased costs from tariffs (2026 Report on Employer Firms: Findings from the 2025 Small Business Credit Survey).

  • Revenue growth expectations among small businesses have fallen from 63% in 2018 to 33% in 2025; employment growth expectations fell from 38% to 23% over the same period (Small Business Credit Survey).

  • Bank lending to small businesses fell 18% in real dollar terms between 2019 and 2023 — even as demand held steady (Federal Reserve Bank of St. Louis, Small Business Lending and Banking Deserts).

  • Banking deserts are growing: 3,629 census tracts nationally lacked a bank branch in 2024, up nearly 7% since 2019, with rural areas hit hardest (FRB St. Louis / Federal Reserve Bank of Philadelphia).

  • Only 42% of small business financing applicants received the full amount they sought in the past year; the top reason for denial was overly strict lender requirements (Small Business Credit Survey).

  • Main Street America's Spring 2026 survey of 2,421 small businesses found overall confidence at 7.2 out of 10 — still below 2022–2023 highs of 7.6–7.7 (Main Street America, State of Small Business Symposium).


Why this feels more urgent now than it did in June

We sat on these notes for a few weeks, and then the tariff news caught up to the conversation. As of late July, the US has imposed new tariffs of 10% to 12.5% on goods from 60 trading partners — including the UK, China, and the EU — covering nearly 99% of American imports.


The pressure has kept building since. On July 20, the US added new 50% tariffs on a slate of Canadian exports — an estimated $20 billion worth of goods, including plywood, particle board, paper products, dairy, alcohol, and clothing — using a rarely invoked provision of the Tariff Act of 1930. (Canada's 25% tariff on US-made autos, and the matching US tariff on Canadian autos, remain unchanged for now.) Unless something changes, the US is set to begin collecting these tariffs on August 19. As of early August, Canada is reportedly negotiating a package of concessions — including repealing its retaliatory auto tariff — in hopes of avoiding them, with both sides treating the August 19 date as a real deadline.


Whatever the outcome of those talks, the direction of travel for small businesses on both sides of the border is the same: input costs going up, with less certainty about what they'll be next month.


This isn't an abstract concern for the businesses in this research. The Small Business Credit Survey data presented at the symposium shows the pattern already forming: 42% of small employer firms cited tariff-related cost increases as a financial challenge in the prior 12 months, and of firms sourcing inputs from outside the US, 84% saw those input prices rise in 2025 compared to 2024. Most of those firms passed the higher costs on to customers (76%) or absorbed them internally (60%) - neither of which is sustainable for long. When costs rise faster than a business owner can reprice or absorb them, the instinct is to find cash fast, and MCAs are built to say yes quickly. As one former restaurant owner we met put it – “the easy access to cash and the press of button can become addictive.”



The pressure is real, and it's building

The Small Business Credit Survey's Employer Firms Expectations Index tells the broader story. Revenue growth expectations for the next 12 months have fallen from 63% of firms in the 2018 survey to just 33% in 2025. Employment growth expectations followed the same path, from 38% down to 23%. These aren't recession-era lows, they're a steady, multi-year decline in how confident business owners are about where things are headed.

Rising costs of goods, services, and wages were the single most common financial challenge, reported by 73% of firms, with 77% experiencing some form of rising-cost pressure overall. On the operational side, reaching customers and growing sales was the top challenge, cited by 57% of firms. Roughly half of firms reported uneven cash flow (50%) or difficulty paying operating expenses (54%) in the prior year.


Into that gap steps the fintech industry — and MCAs

This is where our research and the symposium data converge. Sixty percent of small employer firms applied for financing in the past year, most commonly just to meet operating expenses (56%) — not to expand or invest, but to keep the lights on. Of those applicants, only 42% received all the financing they sought, and 22% received none at all. The most common reason for denial: lender requirements that were simply too strict (46%), followed by existing debt load (37%), low credit score (30%), and insufficient collateral (29%).


That gap — between what a stretched business needs and what a bank or credit union will approve — is exactly where MCAs and online lenders step in. The data shows why that's a mixed bargain. Borrowers who went to online lenders were far more likely to say their actual borrowing costs came in higher than expected (60%, versus 31–37% for banks and credit unions), and satisfaction with online lenders was the lowest of any credit source (35% satisfied, 15% dissatisfied — compared to 76% satisfied with credit unions). Business owners aren't ignorant to this; as one panelist put it, they're using these products "not with their eyes open." They're looking for ease, and ease is exactly what's being sold, even when it costs more than advertised.


This is precisely the dynamic that our summer project collaboration with The Mezzanine Fund - High Interest: Predatory and Deceptive Small Business Lending has been documenting: factor-rate pricing that obscures true cost, UCC-1 lien filings that quietly attach a business's assets, confession-of-judgment clauses that waive a borrower's right to due process before a dispute even exists, and debt stacking that compounds all of it. The MCA market isn't one thing — it's at least two layers: the direct lenders originating these products, and a second industry of questionable debt-settlement firms that has grown up specifically to help business owners escape the first layer.


The banking system's own retreat is part of the story

Mike Eggleston's research for the Federal Reserve Bank of St. Louis put numbers to something we've long suspected: banks are pulling back from small business lending even as demand holds steady. In 2023, banks made over $328 billion in small business loans nationally — but between 2019 and 2023, bank lending to small businesses fell 18% in real dollar terms, despite demand staying largely stable (and even rising among large banks specifically).


Meanwhile, "banking deserts" — census tracts without a physical bank branch within a set radius (2 miles urban, 5 miles suburban, 10 miles rural) — are spreading. There were 3,629 banking deserts nationally in 2024, up almost 7% since 2019. The pattern isn't uniform: newly formed banking deserts see steeper lending declines than long-standing ones, and rural communities are hit hardest, with lending in persistent and new rural banking deserts falling roughly 11–12% between 2019 and 2023, compared to 6–10% in urban deserts.


Approval rates by lender type from the same research are worth sitting with: small banks (52%), credit unions (51%), and finance companies (51%) fully approved applicants at meaningfully higher rates than large banks (44%) — and CDFIs, at 46%, actually approved at rates comparable to or better than large banks, despite serving a harder-to-reach borrower population. Online lenders had the lowest full-approval rate at just 31%, with 38% only partially approved and 30% denied outright. When a business can't get approved — or fully approved — at a bank, credit union, or CDFI, an MCA is often the next door that opens.


What Main Street America's data adds to the picture

Matthew Wagner's presentation, representing Main Street America's network of roughly 1,600 local programs and 300,000 small businesses nationwide (60% rural, 70–80% low-to-moderate income), added a ground-level counterpoint. Their Spring 2026 survey of 2,421 business owners across all 50 states found that 79% of these businesses draw 90–100% of their revenue from in-person sales, 75% operate with fewer than three full-time employees, and 81% use a local or regional bank — precisely the kind of business least equipped to absorb a bad financing decision, and most dependent on relationship-based lending actually working.


Overall confidence sat at 7.2 out of 10 in Spring 2026 — up slightly from 7.0 in Fall 2025, but still below the 7.6–7.7 highs of 2022–2023. Businesses Wagner's team classified as "high performers" (16% of respondents, defined as reporting growth in both revenue and net profit) had markedly higher confidence (8.6/10), were newer businesses on average, had younger owners, and were three times less likely to cite declining customer spending as a challenge. It's a useful reminder that the businesses most exposed to predatory financing are often not the newest or highest-growth ones — they're the steady, in-person, thinly staffed businesses that make up the bulk of Main Street.


Fintech isn't the villain — but it isn't the hero either

To their credit, the fintech panel (Block, Biz2Credit, Bluevine, and others) didn't dodge the hard questions. They acknowledged there's currently no industry-wide definition of a "responsible lender." Biz2Credit's CEO offered a working one: nondiscriminatory, transparent about fees and rates, and focused on verifying a business's ability to repay over time — rather than what the grab, sue, and run"approach that characterizes the worst of the MCA space.


Audience members pointed to existing frameworks worth building on — the Responsible Business Lending Coalition's Small Business Borrowers' Bill of Rights, the Financial Access Initiative's Small Firm Diaries, and the Aspen Institute's work on business opportunity. The tools to define "responsible" already exist. What's missing is adoption and enforcement across a fragmented, state-by-state regulatory landscape. Panelists also referenced company-specific figures during discussion — including a cited $60 million access-to-capital gap in Ohio since 2014, and Block reporting that 88% of its small business borrowers said a loan helped their business — though we note these came from panel remarks rather than the published Fed or Main Street America research, so we'd recommend confirming them directly with those companies before citing them further.


CDFIs are doing the rescue work, with one hand tied behind their backs

Community Development Financial Institutions were repeatedly credited with doing the heavy lifting of getting MCA-burdened business owners back on stable ground — and the approval-rate data backs up why they're trusted: a 46% full-approval rate that holds its own against large banks. But panelists were clear about the limits: not every CDFI does this work, and the ones that do are constrained by how much capital they have to deploy. Several called for CDFIs to get access to a secondary market or additional capital specifically for this purpose.


What might actually help

A few ideas surfaced that are worth BSOs, funders, and advisors sitting with:

  • Alternative underwriting done right. Cash-flow analysis from bank statements, and a case for "character loans" making a comeback — where relationships and track record inform a lending decision that a balance sheet alone would reject. The credit union and CDFI approval and satisfaction numbers above suggest this isn't just a nice idea; it's already working better than the online-lender alternative.

  • Better, more streamlined technical assistance. Business owners are time-pressed — 57% say reaching customers is their top operational challenge, ahead of hiring or supply chain issues. Advisors and BSOs need to be concise and aligned with that day-to-day on the ground realities of operating a business.

  • A more connected ecosystem. Regions where BSOs collaborate produce more resilient business owners. Someone — a convener — has to harness the ecosystem rather than leave every organization to work in its own lane. Easy to say – harder to pull off.

  • A government-sponsored capital vehicle for small business — my initial thought was "Isn't that supposed to be the SBA?" We made a note to follow-up with the panelist on the thought process behind this question.


Why this matters beyond the panel room

Wagner closed his presentation with a sentiment rather than a statistic: small businesses are greater than the sum of their parts or their bottom lines. They truly make our communities worth living in.  It was a fitting close to a day full of numbers. When a business owner gets trapped in a debt-stacked MCA spiral, the damage isn't contained to a balance sheet. It ripples through the block — the 79% of Main Street revenue that depends on someone walking through the door in person, the 81% of relationships built with a local or regional bank, the sense of place that 34% of these businesses provide as a community gathering space.


That's the stake in this work. As one panelist summed it up: "We need to pause and ask what the hell we're doing." We couldn't agree more.


Frequently Asked Questions (FAQs)

What is a merchant cash advance (MCA)?

An MCA is a form of financing where a business gets a lump sum of cash upfront in exchange for a percentage of future sales, priced using a "factor rate" rather than a standard interest rate — which can make the true cost of the money hard to compare or even recognize.

Common features include factor-rate pricing that obscures the real cost, UCC-1 filings that place a lien on business assets, confession-of-judgment clauses that waive a borrower's right to contest a future dispute in court, and "debt stacking," where a business takes on multiple MCAs at once and each new advance goes toward paying off the last. The Small Business Credit Survey data adds a concrete data point: online lender borrowers are twice as likely as bank borrowers to say their actual costs came in higher than expected, and report the lowest satisfaction of any lending channel.

Directly, per the Fed's own data: 42% of small employer firms cited tariff-related costs as a financial challenge in the prior year, and 84% of firms sourcing inputs internationally saw those input prices rise in 2025. When margins get squeezed this quickly, business owners often need cash fast — and MCAs are built to approve quickly, which is exactly why demand for them tends to hold steady or rise during periods of cost pressure like this one.

Not yet. Panelists at the symposium agreed no formal, industry-wide definition exists. One fintech CEO proposed three criteria: nondiscriminatory practices, full transparency on fees/rates/terms, and underwriting based on a business's real ability to repay over time. Our interviews with national small business support stakeholders and advocates for more fair and responsible lending yielded similar results – varying definitions of responsible lending, predatory and deceptive business credit.

CDFIs are often the most accessible source of help for refinancing out of a debt-stacked MCA position — and the data shows they approve applicants at rates comparable to large banks (46% vs. 44%) — though capital availability varies by CDFI and region. Speaking with a business advisor or BSO before taking on additional advances is also strongly recommended.

Educate small business owners on the risks associated with unsolicited loans and MCA offers. Encourage them to seek guidance from your team before signing any documents. Support CDFI capital access (including secondary-market solutions), streamline technical assistance so it matches business owners' real time constraints (57% say reaching customers, not financing, is their top daily challenge), and explore opportunities to partner with funders and philanthropy to provide more flexible, customized capital options.

Sources

  • Hal Martin, Director, Small Business Credit Survey. National Small Business Outlook, presented at the State of Small Business Symposium, Federal Reserve Bank of Cleveland, June 24, 2026. Data drawn from the 2026 Report on Employer Firms: Findings from the 2025 Small Business Credit Survey (Federal Reserve Banks), and supporting research: Kobe & Schwinn (2018, U.S. Small Business Administration); Decker & Haltiwanger (2024, Federal Reserve Board); Yen & Cheh (2025, Federal Reserve Bank of Richmond); Klundt, Haley & Cooksey (2023, U.S. Bureau of Labor Statistics).

  • Mike Eggleston, Senior Community Development Researcher. Small Business Lending and Banking Deserts, Federal Reserve Bank of St. Louis, June 24, 2026. Supporting data: U.S. Small Business Administration (2024 Small Business Profile); U.S. Census Bureau (2022 County Business Patterns); Federal Financial Institution Examination Council; Federal Reserve Bank of Philadelphia; FedCommunities.

  • Matthew Wagner, Ph.D., Chief Innovation Officer, Main Street America. State of Small Business Symposium: Evidence in Action — What the Data Reveal About Small Business Success, drawing on Main Street America's Spring 2026 Small Business Survey (2,421 responses, March 23–April 13, 2026).

  • Responsible Business Lending Coalition, Small Business Borrowers' Bill of Rights; Financial Access Initiative, Small Firm Diaries; the Aspen Institute's business opportunity research — referenced by audience members during the symposium panel discussion.

  • Company-reported figures shared during the fintech panel discussion (Block, Biz2Credit, and others) - cited from panel remarks, not independently verified against a published source.


GTB Advisors researches and advises on practices affecting small businesses, with a focus on access to capital. Follow our work live on Capital Remix, our podcast for BSO leaders, foundation directors, and entrepreneurs.

 
 
 

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