Suffice to say, the merchant cash advance landscape was anything but dull during 2023.
Below, we break down the standout stories, trends, and events that left an indelible mark on the MCA industry throughout 2023—from the introduction of state-level disclosure laws and federal maneuvers for revenue-based financing oversight, to ongoing courtroom sagas and beyond.
For a quarter-by-quarter breakdown of the most noteworthy news of the year, feel free to revisit all of our quarterly reviews:
Let’s dive right into last year’s recap.
1. The Year of MCA Disclosure Madness
If you’ve been following the news, you’ll know that commercial financing disclosure laws (CFDLs) gained significant traction among various states during 2023:
- By Q1, California, New York, Utah, and Virginia had already implemented these laws, forcing lenders—including MCA providers—to incorporate specific disclosures in their commercial transactions with small and medium-sized enterprises (SMEs).
- During Q2, Florida, Georgia, and Connecticut each revealed that their respective laws would become effective in 2024. Just a few weeks ago, on January 1, both the Sunshine State and the Peach State put their CFDLs into action. Connecticut still has some time to go, as their law is scheduled to take effect later this year, on July 1.
- In Q3, Pennsylvania introduced its own CFDL provisions. Rather than create a new law, the state is proposing a short two-section amendment to Pennsylvania’s Loan Interest and Protection Law (PALIPL). The aim is to broaden PALIPL’s scope so it mandates commercial lenders to disclose consumer-like details to SMEs during financing offers.
- Wrapping up the year in Q4, Missouri introduced a CFDL for the third time. Senate Bill 753 closely mirrors SB 187, which did not advance earlier in 2023. A crucial aspect of the bill involves mandatory broker registration.
As of early 2024, we now have many states with CFDL laws passed, and a whole bunch with laws proposed. Learn more about each with our interactive MCA disclosure laws map.
2. California Disclosure Lawsuit Keeps Rolling Along
Case dismissed! Oh, wait…
On December 4, 2023, a judge sided with California’s Department of Financial Protection and Innovation (DFPI) in Small Business Finance Association (SBFA) v. DFPI.
As a refresher, this case goes back to 2022, when the SBFA filed a lawsuit against the DFPI regarding new regulations for commercial lenders. Under SB 1235, these rules required disclosing certain financing details, including the annual percentage rate (APR).
So, what was the problem? According to the SBFA, there were three issues:
- The law messed with free speech rights.
- The new rules butted heads with the federal Truth in Lending Act (TILA), which handles APR calculations.
- More rules would just confuse merchants.
The DFPI originally tried to have the case dismissed. But in early 2023, a federal judge ruled it would proceed. Fast-forward about 11 months, and the judge declared that he did not agree with the SBFA’s arguments.
The DFPI was clearly thrilled about the ruling, claiming it was a victory for consumer protection rights, as well as the four million SMEs in California.
But the SBFA wasn’t willing to throw in the towel—quite the contrary. On December 29, 2023, they filed an appeal to the United States Court of Appeals for the Ninth Circuit.
So, it looks like this years-long saga is poised to keep going for another few months—at least. Only time will tell where this legislation ends up.
3. Economy Shows Resilience, Alternative Lending Thrives
Admittedly, 2023 started on a pretty sour note, with the collapses of Silicon Valley Bank and Signature Bank and the threat of a recession.
But it wasn’t a year of all doom and gloom. In fact, we saw some really great things happening across the U.S. economy and SME alternative lending industry.
More Jobs, More Spending, More Saving
According to the U.S. Commerce Department:
- The nation’s economy added 2.7 million jobs in 2023.
- Retail sales (excluding oil and gas) increased by 4.9%.
- Americans began spending more in goods and services, and saving more, with the personal saving rate rising to 4.5%.
- The real GDP increased 3.1% between Q3 2022 and Q4 2023—a major boost compared to the 0.7% increase between Q4 2021 and Q4 2022.
Good News for the Alternative Lending Industry
After Q1, we figured banks and lenders would likely tighten their purse strings and increase restrictions on funding to bolster their cash reserves.
It seems our prediction was accurate: big-bank SME lending continued its downward slope throughout 2023.
The positive development, however, is that alternative lending firms (including MCA funders) experienced an upswing in activity and approvals.
The Biz2Credit Small Business Lending Index, in fact, indicates a consistent 11-month rise in SME loan approvals by alternative lenders, reaching 30.0% in November.
It’s worth noting that in November 2022, alternative lenders’ approval rates stood at 27.4%, reflecting a 2.6% annual increase.
| Month | Big Bank Loan Approvals | Alternative Lenders Approvals |
| January | 14.4% | 27.8% |
| February | 14.2% | 27.9% |
| March | 13.8% | 28.4% |
| April | 13.5% | 28.7% |
| May | 13.4% | 28.9% |
| June | 13.4% | 29.1% |
| July | 13.3% | 29.3% |
| August | 13.2% | 29.5% |
| September | 13.1% | 29.7% |
| October | 13% | 29.9% |
| November | 13% | 30.0% |
| December | N/A | N/A |
So what does this mean for 2024?
While we can’t be sure, experts still believe that the U.S. alternative lending market will see a major boost over the next three years—reaching over $218 billion by 2027.
The Big Players
While we’re still waiting for Q4 results from the big names in alternative lending, mid-year and Q3 financials showed some pretty impressive growth:
- Funding Circle’s U.S. arm originated $259 million worth of business loans in the first half of 2023, up from $214 million in the previous half (Q3 and Q4 2022).
- Enova originated $783 million in SME loans in Q3, up from $770 million in Q1, and $712 million in Q2. Meanwhile, their total revenue of $551 million in Q3 2023 jumped 21% from $456 million in the Q3 2022.
- Square Loans originated 120,000 loans in Q3 for a total of $1.17 billion in Q3, up from $1.10 billion in both Q1 and Q2 of last year. While things took a bit of a dip in early 2023 compared to late 2022, it appears the company ended the year on a higher note.
- In Shopify Capital’s Q3 earnings report, we saw a surge in business loans and MCA originations. While they didn’t disclose exact figures, we noticed Shopify has been working hard to showcase Shopify Capital as a robust and thriving segment. If history is an indicator, we expect that they will round out 2023 with fantastic Q4 results.
These big numbers from the big players give us an idea of how well the alternative lending industry, as a whole, performed in 2024.
4. President Biden Vetoes S.J.Res. 32
In March 2023, the Consumer Financial Protection Bureau (CFPB) finalized a rule mandated by Congress to boost transparency in small business lending.
This extensive 888-page national law aimed to make SME funders step up their game in data collection and reporting, spanning financial products from MCAs and loans, to lines of credit.
In response, House and Senate lawmakers introduced joint resolution S.J.Res. 32 on May 30, 2023 to scrap these rules, leading to a hearing on June 14.
Cut to December 19, and President Biden officially vetoed the resolution.
Why?
According to Biden, backing the resolution would prioritize the needs of big banks and corporations over SMEs. He argued that letting the resolution slide would hinder efforts to make SME lending more transparent and accountable.
Now, the clock is ticking on these rules, slated to kick in on October 1, 2024. The heightened regulatory scrutiny and data requirements may pose additional challenges for smaller lenders, affecting their operational flexibility more than ever before.
In the meantime, we’ll be keeping an eye out for any courtroom drama that could shake up the timelines.
5. More Federal Posturing in MCA Disclosures
In 2023, as a growing number of states decided it was high time to clean up the commercial financing scene, some federal lawmakers decided that they didn’t want to miss out on the party.
And so, we saw the introduction of the Small Business Financing Disclosure Act of 2023.
Essentially an updated version of the federal Truth in Lending Act (TILA), this bill aims to do two things:
- Ensure more transparency and regulation within commercial lending, by protecting SME borrowers from unfair terms and conditions.
- Put the Consumer Financial Protection Bureau (CFPB) in charge of policing SME financing.
Is this a good thing?
Some SME and fintechs think so. Supporters have even voiced optimism that this change could improve business financing for underserved merchants, like women and people of color.
As for SME funders’ and lenders’ opinions on the industry being taken over by one overarching federal organization, the jury’s still out.
That said, the bill has only been introduced—and that was in June 2023. It hasn’t gone through the Senate or House yet.
Meanwhile, Congress’ website isn’t providing any hints about when next steps will be taken.
Navigate 2024’s Shifting Landscape With Onyx IQ
Despite all the economic uncertainty kicking off 2023, the alternative lending scene didn’t miss a beat, showing some serious growth and proving its importance for merchants.
Unfortunately, things also got significantly more complicated last year, with all the talk about oversight, and lawmakers stirring the pot at both state and federal levels.
As the MCA world keeps rolling with the punches, we’re facing a mix of new rules, legal battles, and the government stepping in—shaping up what appears to be a wild ride for the MCA sector in 2024 and beyond.
Excelling in this dynamic industry requires heightened diligence and adaptability. The good news is that you don’t have to do it alone.
That’s where Onyx IQ comes in. We don’t just observe industry shifts—we equip MCA providers with an advanced funding platform so they can navigate change with confidence, no matter what the tide brings.
Ready to embrace the future of revenue-based financing? Schedule a demo today, and let Onyx IQ be the driving force propelling your MCA success in 2024.
