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Top Merchant Cash Advance Stories: Q1 2023

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The first quarter of 2023 has been a rather tumultuous one for the merchant cash advance lending space.

Not only have MCA regulations continued to pop up, but the Silicon Valley Bank/Signature Bank crisis continues to affect all stakeholders in unpredictable ways.

But despite the chaos, there are some inspiring stories of success and growth from the industry’s top players—not to mention new areas of opportunity for brokers and funders.

Today, we are going to take a look at all of this and more as we review the top five merchant cash advance stories of Q1 2023. Let’s dive in. 

1. States Continue To Propose Disclosure Laws

Commercial Financing Disclosure Laws (CFDLs) have become increasingly popular in recent years.

States like California, New York, Utah, and Virginia have already implemented such laws, requiring lenders (including MCA providers) to include certain disclosures in their commercial transactions with businesses.

Now, other states are following suit and establishing similar MCA regulations. Georgia is poised to become the next, with Florida, Illinois, Maryland, and Missouri close behind.

The introduction of disclosure laws in alternative lending aims to provide greater transparency and clarity for merchants when comparing financial products. However, the scope of these laws varies.

Some proposed laws would require disclosures for all commercial loans regardless of size, while others may include exemptions.

Keeping up with these MCA regulations may seem like a daunting task, but it is vital for funders to stay informed and ensure compliance. Penalties differ from state to state: in New York, for example, providers may be on the hook for $10,000 per violation.

2. CFPB Says State Disclosure Laws Are Legit

According to the Consumer Financial Protection Bureau (CFPB), individual states can continue extending financial disclosure laws to commercial financing transactions, as they do not conflict with federal regulations.

In response to a request made by an industry trade association, the CFPB evaluated whether New York’s commercial financing disclosure law was overstepping the boundaries of the Truth in Lending Act (TILA).

Ultimately, the CFPB affirmed that it was not, because the TILA only covers consumer—not commercial—transactions. That is to say, the law applies to merchant cash advances. 

The CFPB’s resolution sets the stage for potential clashes and changes in both state and federal regulations in the future—not to mention adding another layer to the ongoing debate over who holds power when it comes to regulating commerce.

3. California Fails To Dismiss Disclosure Lawsuit

Last year, California approved its own financial disclosure regulations. In response, the Small Business Finance Association (SBFA) filed a lawsuit against the Commissioner of the California Department of Financial Protection and Innovation (DFPI).

In their submission, the SBFA claimed that APR disclosures are defined and governed at the federal level by the Truth in Lending Act, and that further regulations would only serve to confuse customers.

Despite the state commissioner’s attempts earlier this quarter to have the case dismissed, a federal judge recently ruled that it will proceed. But, considering the CFPB resolution we highlighted in the section above, this SBFA case could easily end the same way.

The Negative Impact on SME Lending

A recent poll conducted by the Secured Finance Network revealed some concerning findings about SME lending in California.

After the new disclosure rules were implemented, 40% of respondents reported they were no longer lending to prospective borrowers who fall within the regulations’ threshold of less than $500,000.

Why? According to lenders, the disclosure requirements are proving too complicated to figure out. Lenders also stated that ensuring compliance necessitates involving attorneys and CPAs. In other words, they believe it’s becoming too costly and risky to justify funding smaller deals.

Although this sentiment raises concerns about the future of small enterprises that need capital, and the potential impact the new regulations may have on the economy, at Onyx IQ, we believe that if you do good business, you don’t need to worry—you’ll just need to adjust.

4. Signature Bank and SVB Fail: Now What?

To say the recent collapse of Signature Bank was a significant event is quite the understatement. It represented the third-largest bank failure in US history, happening right after the collapse of Silicon Valley Bank.

The failure of both SVB and Signature Bank sent shockwaves through the banking sector. Regulators reacted by creating a system to provide depositors with their money, even for amounts greater than the $250,000 FDIC limit. Thankfully, this has eased fears and prevented panic from spreading further.

That said, the future is still unknown—particularly for small enterprises in need of funding.

It is possible that banks may crimp lending in order to have more cash on hand. The US Chamber of Commerce says that loan availability has been declining, forcing many merchants to dig into their personal bank accounts to cover expenses. Now, SMEs may find themselves in an even tighter spot when it comes to access to capital.

With traditional banks becoming increasingly cautious about lending money, this could actually create more opportunities for alternative lending firms, including merchant cash advance providers. 

So, despite the turbulence these big bank failures have caused, there is potential for growth in the alternative lending sector as a result.

5. Industry Leaders Report Strong 2022 Financials

Despite the current economic uncertainty, three industry giants recently reported unprecedented success over the past fiscal year:

  • Square Loans experienced a stellar 2022, funding over $4B across 461,000 loans. The company also achieved strong revenue and gross profit growth, particularly during the fourth quarter. 
  • Funding Circle US has also been on a roll, dishing out $393M in business loans in 2022. That’s no small feat, considering that represents almost four times the amount lent out the year before.
  • Shopify Capital continues to make waves in the world of business loans and MCAs. With $393.2M funded in originated loans in Q4, this represented a 21% increase for the company over the previous fourth quarter.

While larger lending institutions may continue to dominate the market, the current credit crunch may provide a golden opportunity for smaller alternative lending firms seeking new business.

Adapt and Evolve With Onyx IQ

The alternative lending industry is evolving, as new merchant cash advance regulations pop up and new players enter the market.

To remain competitive, it is essential for MCA providers to stay ahead of the game. 

Onyx IQ can help you do just that, by providing industry-leading technology that simplifies and automates your lending processes. 

By leveraging the power of real-time data, Onyx IQ allows you to make precise decisions that can drive ROI for your business, even as the industry evolves.

See for yourself and demo Onyx IQ today.

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