Small businesses face high MCA costs

A Long Beach paint and sip studio borrowed $11,850 from a New York finance company and now carries a debt load exceeding $34,000. The owners, Michael Mosselli and Marty Meier, closed their decade-old business in July after failing to meet the aggressive repayment terms of a merchant cash advance, or MCA. They described their decision to seek this financing as a move made out of desperation when sales dropped by more than half earlier this year.

Merchant cash advances are growing in popularity as traditional bank loans become harder to obtain. According to a Federal Reserve survey, the percentage of small business financing applications for MCAs rose from 8% to 12% between 2023 and 2025. In the same period, 40% of owners applying for government-backed loans were denied, compared to just 10% for MCAs. Analysts estimate the national MCA market, which was $8.6 billion in 2014, could reach $35 billion by 2030.

The product operates outside the regulated banking system, meaning issuers are not subject to federal interest rate caps. Mosselli and Meier’s contract with Woodmere Capital, which registered in New York in 2024, showed a 32% daily interest rate. The agreement required daily withdrawals of over $300 from their business accounts, a schedule the company estimated would take two months to complete.

When the studio’s revenue failed to cover the daily debits, the owners paused automatic payments in late March. Woodmere responded with a text message stating it was aggressive on collecting and would freeze assets and use private investigators. The owners said they were shocked by the tone and did not request a reconciliation of terms, which the company’s operations head, Justin Miller, said was available to adjust payments based on recent sales.

Bankruptcy attorneys in California report a sharp increase in cases involving MCAs. Stella Havkin, a lawyer representing small businesses, said that in 2018, about 5% of her cases included an MCA. Now, she estimates at least 70% of her cases involve at least one cash advance. John-Patrick M. Fritz, a partner at an L.A.-based firm, noted that these advances often accelerate the financial decline of businesses that were already struggling.

California lawmakers have moved to regulate the sector. A law signed into effect last month requires MCA companies to be licensed. Previous laws passed in 2018 and 2023 mandated specific disclosures and prohibited certain processing fees. These regulations did not change the specific terms Mosselli and Meier agreed to, but they aim to provide clearer cost structures for future borrowers.

Mosselli and Meier have repaid approximately $6,400 of the advance. Liens have been placed on their PayPal and Groupon accounts, cutting off additional revenue streams. Woodmere’s listed address in Nassau County is a single-family home. Miller, who identified himself as head of operations, defended the model by comparing it to credit card payments and stating that the company purchases future receivables rather than lending traditional loans.