We’re already halfway through the year, and the merchant cash advance industry has been buzzing with developments.
Many of Q2’s biggest MCA stories revolve around the recent rise in revenue advance regulation. But that’s not all there is to it.
Below, we’ve rounded up the top stories from the second quarter of 2023 (just like we did for 2022 and Q1 2023) to ensure that you’re up to speed on the latest merchant cash advance trends.
In this article, we’ll provide key details and discuss the implications for MCA providers of the industry events that took place from April through June 2023.
1. Merchant Cash Advance Disclosure Regulation Goes Federal
Big news in the world of federal legislation, as lawmakers are making moves to bring more transparency and regulation to the commercial financing industry.
Their latest mission? To give overarching powers to the Consumer Financial Protection Bureau (CFPB), with the intention of creating a less predatory SME lending system.
The introduction of the Small Business Financing Disclosure Act of 2023 is essentially an update to the federal Truth in Lending Act (TILA). It provides protections for small enterprises, just as it already does for consumers.
Organizations like the national Small Business Majority and the American Fintech Council have applauded the introduction of this legislation. Supporters have also voiced optimism that this legislation will improve business financing for women and people of color.
The push for a bill like this has been going on for some time, and aligns with the state-level disclosure regulations we have seen.
Next up, we’ll see if the bicameral bill passes through both houses of Congress.
2. Congress Takes on CFPB’s Small Business Lending Rules
Interestingly, as one bill is introduced in Congress to give the CFPB more power, there is also a congressional resolution fighting the organization’s latest SME lending rules.
The issue revolves around a new 888-page national law enacted in late March 2023.
In a nutshell, the CFPB is requiring significant regulatory changes for the SME financing industry when it comes to how lenders collect and report data to the federal government. This would apply to transactions including merchant cash advances (MCAs), loans, and lines of credit.
CFPB’s intention is to increase protection and oversight for small businesses seeking financing.
However, on May 31, legislators from both the House and Senate put forth a joint resolution aiming to nullify these rules. The resolution was debated in a hearing on June 14. It remains to be seen what the impact of the resolution will be.
If successful, this resolution will reverse the CFPB rules, sending the agency back to the drawing board. Proponents believe this will force CFPB’s hand to create a regulatory landscape that is more conducive to the interests of lenders and borrowers alike.
If the resolution does not pass, lenders must prepare for a load of additional paperwork.
3. More State-Level MCA Regulations
In Q2, we saw more states introduce, sign, and implement their own Commercial Financing Disclosure Laws (CFDLs):
- Following in the footsteps of California, New York, Utah, and Virginia, we can now add Georgia and Connecticut to the list. Their individual laws will go into effect next year on January 1 and July 1, respectively.
- Florida also joins the list. The Sunshine State’s legislation—including its unique code of conduct for brokers—took effect on July 1, 2023. However, the law will apply only to commercial financing transactions that occur on or after January 1, 2024.
The scope of these laws differs across individual states. However, their intent is essentially the same: to promote fair practices so that SMEs can make more informed financial decisions.
The challenge for funders will be navigating through this ever-changing regulatory landscape. With penalties in the thousands of dollars (and reputations at risk) funders will need to stay regularly informed and ensure unwavering compliance.
To see an evolving list of commercial financing laws by state (where laws have passed, and laws are about to pass), check out this handy map by Debanked.
4. Unlawful Debt Settlement on the Rise?
Debt settlement companies get a bad rap… and in the case of the MCA industry, it’s well-deserved.
Promising to eliminate debts by negotiating settlements at a fraction of the owed amount, these companies often deliver little while charging exorbitant fees.
Within the merchant cash advance industry, we’ve heard alarming accounts first-hand from our funder clients, suggesting an uptick in shady debt settlement practices.
These companies present an absolute lose-lose situation for merchants and a massive headache for merchant cash advance providers.
Curious to learn more? Dive into this article [link to article] for an in-depth exploration of unlawful debt settlement companies and their impact on both SMEs and MCA funders.
5. Business Is Booming at Shopify Capital
Things certainly aren’t slowing down at Shopify Capital.
As recently reported, in Q1 2023, the Shopify Inc. financing wing for small businesses originated a whopping $477M. That’s a major increase (37%) from the nearly $347M produced in Q1 of 2022.
These most recent numbers also show a big jump (up 21%) from Q4 of last year, when they extended $393M in loans and merchant cash advances.
Strangely, despite this growth, Shopify’s business lending and MCA division was not mentioned or even asked about during the company’s quarterly earnings call. That said, we’ll be sure to keep our eye on this major MCA player over the coming months.
Onyx IQ Empowers MCA Lenders in a Changing Market
As Q2 2023 has demonstrated, the merchant cash advance industry continues to evolve.
With evolving MCA regulations, bad actors making moves, and major market leaders seeing massive growth, staying ahead of the game is crucial to remaining competitive.
That’s where Onyx IQ comes in.
With our cutting-edge technology, we empower alternative lenders to simplify and automate lending processes. The result? A competitive edge to succeed in this ever-changing industry.
Stay ahead of trends, embrace innovation, and unlock the future of MCA with Onyx IQ.
Interested in learning more? Schedule a demo today.
