Business Lending July 24, 2026 By Franklin Funding Team, Business Lending Desk

Merchant Cash Advance Complaints Are Rising: What El Paso Business Owners Are Doing Instead

Defaults are up 59% nationally, Texas just started regulating the product, and the SBA closed its most common exit ramp. Here's what changed and where El Paso owners are turning.

Merchant cash advance defaults hit $2.22 billion nationally in 2024, up 59% from $1.4 billion the year before, according to data reported by ReverseConsolidation.com. Texas started regulating merchant cash advances for the first time last September. The SBA closed off its most common escape route in June 2025, and federal regulators can't agree whether the product counts as a loan at all. For an El Paso business owner holding one of these advances, the ground shifted fast this year. Here's what actually changed, and what owners are doing instead.

The Default Numbers Behind the Complaints

Distressed businesses working with MCA restructuring firms in 2024 carried three to seven active advances at once, with combined payments eating 40% to 60% of gross revenue, per the same reporting. That's not one bad decision. It's several advances stacked on top of each other, each one taken to cover the last. PayPal, Shopify, Square, US Bank, Citigroup and Enova reported the combined default figures behind the 59% jump.

None of this means an MCA is automatically a bad deal. Restaurants and retailers with strong card volume and a genuine short-term need still use them productively. The trouble shows up when a business takes a second advance to cover the payment on the first, which is where the complaint volume and the regulatory attention are concentrated.

Why the Complaints Keep Piling Up

The clearest example landed in January 2025, when New York Attorney General Letitia James secured a $1.065 billion judgment against Yellowstone Capital, the largest single-state consumer restitution in New York history. Investigators found the company charged effective rates as high as 820% while marketing the product as an MCA rather than the loan it functioned as. The settlement canceled roughly $534 million in debt for more than 18,000 small businesses nationwide. The FTC has run similar cases, including a permanent industry ban against MCA operator Jonathan Braun over deceptive terms and unauthorized asset seizures.

Part of the friction is structural. An MCA is priced with a factor rate, a flat multiplier of roughly 1.1 to 1.5, rather than a shrinking interest rate on a declining balance. A business that repays faster than expected doesn't save money the way it would on a term loan. Industry data compiled by MCA lender Crestmont Capital puts the effective annual cost of a typical MCA between 50% and over 300%, and estimates 35% of businesses that take one out report serious cash flow strain within six months.

Texas Started Regulating the Product Last Fall

Governor Greg Abbott signed House Bill 700 on June 20, 2025, effective September 1, 2025. It's the first Texas law to directly address commercial sales-based financing, the legal term covering most MCAs. Providers must now disclose the total financing amount, finance charge, repayment total, fees and repayment terms in writing before a business signs, on deals under $1 million. They must also register with the Texas Office of Consumer Credit Commissioner by December 31, 2026. Violations carry civil penalties up to $10,000 per instance.

The law doesn't cap what an MCA can cost. It requires the cost to be written down in plain terms before signing, a lower bar than most owners assume already existed. One side effect worth watching: the automatic-debit restriction is written broadly enough that some in the industry argue it could also complicate legitimate revenue-based financing, not just predatory MCAs.

The SBA Closed the Most Common Exit Ramp

For years, standard advice for a business drowning in MCA payments was to refinance into a lower-cost SBA loan once revenue stabilized. That door closed June 1, 2025. Under SBA SOP 50 10 8, MCAs and factoring agreements are explicitly ineligible for refinancing under 7(a), SBA Express, Export Express, or International Trade loan proceeds. The agency's stated concern was risk layering: government-backed guarantees were effectively subsidizing cleanup of private, high-cost debt. The practical effect for an El Paso owner is that SBA refinancing no longer works as the standard MCA off-ramp, pushing more businesses toward structured debt relief or consolidation instead.

Regulators Still Can't Agree What an MCA Even Is

In February 2025, a federal court upheld the CFPB's position that MCAs count as credit under the Equal Credit Opportunity Act. Then, in May 2026, the CFPB reversed course and excluded MCAs from its Section 1071 small-business data reporting rule, acknowledging some MCA products resemble true sales of future receivables while others function as disguised loans. That leaves fair-lending obligations genuinely unsettled, which is one reason the CFPB's public complaint database, built for consumer products, still doesn't track MCA complaints as a distinct category the way it tracks credit cards or mortgages. State attorneys general and the FTC are filling that gap case by case.

What El Paso Business Owners Are Doing Instead

Three alternatives keep coming up in conversations with El Paso operators trying to get off the MCA treadmill:

• Revenue-based financing. Repayment scales with actual monthly revenue instead of a fixed daily debit, which softens the blow during a slow month. See our MCA vs. revenue-based financing comparison for how the math typically compares in El Paso.
• Invoice factoring. For businesses with unpaid B2B invoices, especially logistics and trucking operators near the Zaragoza and Ysleta ports of entry, selling receivables at a discount replaces an MCA's daily debit with a one-time transaction tied to completed work.
• TSBCI-backed bank loans. Texas's state guarantee program helps newer businesses that don't yet qualify for standard SBA underwriting access bank-rate financing instead of MCA pricing.

For owners already several advances deep, the first move usually isn't a new financing product. It's an honest accounting of what's outstanding, followed by a conversation about which alternative fits the business, not which one closes fastest.

Estimate Your Real MCA Cost

Factor rates make MCA pricing hard to compare against a loan quoted in APR. The calculator below converts a factor rate and repayment period into an estimated effective annual rate, then compares the total cost against a fixed-rate alternative over the same period. It's a planning tool, not a quote.

The Even-Handed Take

MCAs are not the villain in every story. They fund real payroll and real inventory when a bank line isn't an option and the money is needed in days, not weeks. The businesses in the complaint statistics are usually the ones that took a second advance to pay the first, not the ones that used a single MCA for a defined purpose and paid it off on schedule. The regulatory response, in Texas and nationally, targets disclosure and stacking, not the product itself.

Next Move

If you're currently in an MCA, pull your repayment schedule and check what percentage of daily or weekly revenue it actually consumes. If that number is climbing past 15%, or you're weighing a second advance to cover the first, that's the signal to call a broker before signing anything else. If you're shopping for one, ask any Texas provider for their OCCC registration status. Registration isn't mandatory until December 31, 2026, but a provider already registered, or visibly preparing to be, is a reasonable filter for who plans to stay compliant. Watch that deadline. It's the next real test of how many providers actually adjust.