Big policy swings. Major legal shakeups. And a new wave of rules, reshaping just about every corner of merchant cash advance funding.
In an intense quarter we can only refer to as “dramatic,” we saw sweeping regulatory changes that carry real weight for the MCA industry—affecting everything from underwriting and compliance to deal flow.
Below, we break down each seismic shift so your SME funding team can stay agile, compliant, and ahead of the curve.
Want to know all the biggest merchant cash advance trends and stories of the last few years? Check out our ongoing quarterly series:
- 2025: Q1
- 2024: Q1, Q2, Q3, Q4, Biggest MCA Stories of 2024
- 2023: Q1, Q2, Q3, Q4, Biggest MCA Stories of 2023
- 2022: Top MCA Stories of 2022
Now, let’s dive into Q2 2025.
1. North Dakota May Force MCA Funders to Think Like Lenders
The Peace Garden State just made a big move, albeit ever so quietly.
This past quarter, as part of a larger data security bill, North Dakota lawmakers passed House Bill 1127 to change the definition of a “loan” under the state’s Money Brokers Act (MBA).
At first glance, this tweak may not seem like a big deal.
But dig deeper and you’ll find that, starting August 1, 2025, “loans” could encompass alternative funding products like merchant cash advances.
We say “could” because, as of publishing this article, the state’s Department of Financial Institutions (DFI) hasn’t yet confirmed where things stand. That said, even without the DFI’s proverbial rubber stamp, courts could eventually interpret the new language broadly.
In other words, whether or not the DFI formally says so, you might soon find your MCA funding operation regulated just like a lending business in North Dakota.
So, what does all this mean for MCA funders operating in the state?
Well, you may soon be required to comply with regulations that have historically applied only to traditional lenders—including obtaining a money broker license, plus adhering to the state’s 36% annual interest rate cap.
MCA providers doing business in North Dakota may want to err on the side of caution by taking a proactive stance now.
Reevaluate your product offerings, revisit your compliance strategy, watch closely for updates from the DFI—and get ready to pivot fast.
2. MCA in Texas: Time To Rethink the Model?
The Texas MCA crackdown has officially begun.
In April, Texas lawmakers introduced House Bill 700 to regulate sales-based financing.
Originally, the bill included some pretty standard disclosure requirements. But in May, an amendment was introduced that could be a deal-breaker for merchant cash advance funders currently operating in the Lone Star State.
Under the new legislation, funders won’t be able to auto-debit a business’s bank account unless they hold a “validly perfected security interest in the recipient’s account.”
Not only is this security interest rare and difficult to obtain, but this provision threatens the very model of revenue-based financing across the entirety of Texas.
By tying payments to real-time earnings, flexible SME funding like MCAs has helped countless smaller enterprises grow, especially those historically underserved by banks.
Now, HB 700 is poised to block SMEs’ access to fast funding, pushing entrepreneurs toward risky loans, or shutting them out of funding altogether.
Signed into law in June, the new regulation is scheduled to take effect beginning September 1, 2025. Funders will soon be required to register with the state’s Office of Consumer Credit Commissioner.
For now, many questions remain.
How will MCA providers in Texas work around these new rules? Is it even possible? And will other states slowly follow, adding a similar type of amendment to their own MCA disclosure laws?
It’s still too soon to tell. Regardless, merchant cash advance providers currently offering SME funding in Texas will need to adapt—and quickly.
Whether that means restructuring MCA products and repayment methods, seeking out new partnerships or something else, it’s clear that staying compliant and competitive in Texas is going to require some creative thinking.
3. CFPB Under Fire: What It Means for Rule 1071 and MCA Funders
If you recall, earlier this year, a Florida magistrate ruled that:
- The Consumer Financial Protection Bureau (CFPB) was within its rights to define merchant cash advances as credit under the Equal Credit Opportunity Act.
- The data-collecting Rule 1071 (aka Final Rule) made sense for fair lending.
Since then, we’ve seen more legal challenges to the Final Rule on the basis that the CFPB violated the Administrative Procedures Act. In response, the CFPB announced in June that it would, once again, extend its compliance deadlines.
However, the agency has far more than just Rule 1071 to worry about.
Currently, we are witnessing the organization’s very future at stake:
- Under new leadership, the CFPB workforce was recently reduced from 1,700+ to only about 200 employees. Meanwhile, the agency is making a major shift away from student loans, digital payments, and SME funding oversight, focusing instead more intently on consumer harms.
- In early June, the CFPB’s Acting Enforcement Director resigned, stating that the agency’s mission was being dismantled and that enforcement was no longer being taken seriously.
- At the same time, courts continue weighing the bigger legal fight over whether the CFPB can be dismantled at all.
With top leadership resigning and legal fights ongoing, it’s unclear whether the Final Rule will get revised, move forward, or disappear entirely. That uncertainty makes planning difficult for MCA funders.
Still, here’s the thing: even if Rule 1071 vanishes, state-level laws pushing for fair financing and transparency are already filling the gap.
Take California, for instance. We’ve talked previously about the state’s MCA reporting mandate, which requires detailed disclosures similar to what the CFPB was planning to do at the federal level.
Other states have their own rules and non-compliance penalties, too. And more are likely on their way.
So, rule or no rule, CFPB or nor CFPB, the ongoing pressure to comply isn’t going to lessen.
Getting ahead of compliance is always a better bet versus scrambling later. Therefore, merchant cash advance funders should take this time to review contracts, data collection processes, and consult with legal experts on next steps.
4. SBA Axes MCA Refinancing, Just Months After Approval
Just a few months ago, the Small Business Administration (SBA) surprised many by saying it would allow 7(a) loans to be used to refinance MCAs.
That guidance came in the form of a Procedural Notice extending SOP 50 10 7.1, where the SBA specifically stated that “lenders may refinance merchant cash advances, factoring agreements, and non-amortizing credit facilities.”
But on June 1, the SBA did an about-face.
In SOP 50 10 8, the agency now explicitly says that “merchant cash advances and factoring agreements are not eligible for refinancing.”
Why the sudden flip-flop? Mainly, the SBA has been losing money due to rising defaults, especially early ones, within its 7(a) loan program.
Meanwhile, banks have been sounding the alarm on customers using SBA funds to pay off MCA debt, only to take out new MCAs immediately after. This can create a harmful cycle that undermines repayments and increases default risk.
With SBA refinancing no longer possible, SME owners may turn to other solutions—some legit, some questionable. They will also likely become more cautious before entering merchant cash advance agreements. That’s not necessarily a bad thing, but it does alter the playing field.
Without SBA payoffs, MCA underwriting could become tighter, and approvals may drop for SME owners with outstanding balances.
However, this change could also create new growth opportunities for merchant cash advance providers who specialize in SME funding. In fact, this shift opens the door for funders who know how to serve high-intent, high-need business owners more strategically.
Many SMEs who have previously taken out MCAs are still actively looking for funding. To win in this new environment, consider:
- Sharpening your messaging to speak directly to their current challenges.
- Positioning your product clearly so SME owners understand you are responsive to their changing needs, as well as regulatory changes.
- Developing consistent, proactive follow-up strategies that keep your MCA funding operation top-of-mind.
Put another way, the key is meeting these customers with the right structure, guidance, and communication.
From MCA Disruption to Opportunity, Onyx IQ Helps You Adapt and Dominate
Q2 certainly brought forward some new challenges for merchant cash advance funders. However, this is far from the end of the industry.
In fact, if anything, Q2 marked a powerful inflection point.
MCA funders are no strangers to ongoing change. When regulations shift, you find ways to pivot and evolve.
And Onyx IQ is here to help. We don’t just inform you about the latest regulatory and operational hurdles—we equip you to overcome them and scale your business via our all-in-one, automated MCA platform.
By combining a host of key MCA funding functions within one central system, our software helps simplify daily SME funding tasks while empowering you to comply instantly, and masterfully, any time laws change.
The next era of MCA belongs to those who run smart, compliant, and forward-thinking operations.Ready to lead? Book an Onyx IQ demo today to secure that competitive edge.
