Merchant cash advances, or MCAs, have become a common feature of small business bankruptcy cases. Once viewed as a quick source of working capital for companies that could not qualify for traditional financing, MCAs are now frequently appearing on creditor schedules when businesses collapse under the weight of stacked advances, aggressive collection tactics, and repayment terms that can be difficult to sustain.
An MCA is typically structured as a sale of future receivables rather than a loan. In practice, however, many business owners receive a lump sum upfront and agree to remit a percentage of future credit card sales or daily bank deposits until the advance is repaid, often with a factor rate that produces a very high effective cost of capital. These arrangements can become especially burdensome when a struggling company takes out one advance to pay another or what we call “stacking.”
Bankruptcy filings involving MCA debt surged in 2023 and reached a peak in 2025, with more than 230 cases involving MCA creditors. While these cases are concentrated in Florida and Texas, the issue is now appearing in bankruptcy courts across the country. The trend is not limited to small businesses either, as larger companies and franchise operators have also begun reporting substantial MCA obligations in Chapter 11 cases.
The key issue in every MCA matter whether defending against them in litigation or in bankruptcy court is whether the transaction is truly a sale of receivables or a disguised loan subject to usury laws. In some recent rulings, bankruptcy judges allowed trustees to pursue claims against an MCA funder accused of masking a loan as a receivables purchase. Other courts, however, have reached different conclusions, which means outcomes can depend heavily on the specific contract language, the funder’s conduct, and the facts of the debtor’s business operations.
For business owners, the practical lesson is clear: MCA debt can accelerate financial distress and may complicate a bankruptcy case if the company has multiple advances, default fees, or personal guarantees attached to the financing. When repayment becomes impossible, bankruptcy may provide the clearest path to challenge the enforceability of the MCA claims and evaluate whether the obligations should be treated as unsecured debt.
This trend is important for small business owners because MCA funders often move quickly, require little underwriting, and can stack multiple agreements before the borrower fully understands the long-term cost. Once cash flow tightens, the business may be trapped in a cycle of daily withdrawals, renewed advances, and mounting default charges. In our experience, it is a system that sets the business owner for failure from the beginning. Collection and lawsuits are filed quickly by the MCA’s and the company must decide whether to defend themselves in court, negotiate a settlement or inquire about he bankruptcy route.
It also matters because bankruptcy may give debtors and trustees a way to test whether the MCA is legally a loan in disguise. If a court agrees, the funder may lose the protection it expected from calling the deal a receivables purchase. It may also give the trustee some teeth in allowing them to try to claw back fees from the MCA that were paid by the business.
Businesses considering MCA financing should review the contract carefully before signing and understand whether the agreement includes factor rates, confession-of-judgment language, personal guarantees, or harsh default provisions. If the company is already behind on payments, they should engage with counsel to assess whether the matter can be defended, negotiated and settled or whether early bankruptcy analysis may help determine whether the MCA claims can be challenged, reduced, or recharacterized.