A merchant cash advance (MCA) is commonly structured as sales-based financing: you receive an upfront payment in exchange for a share of your future sales. This article covers federal enforcement cases, a Texas bill that would add disclosure and registration requirements, and New York’s Yellowstone settlement. New York’s attorney general has alleged that Yellowstone provided loans rather than MCAs, so the label on the contract is worth checking closely.
What is a merchant cash advance?
The Federal Trade Commission describes merchant cash advances as “a type of alternative small business financing.” In its words, “merchant cash advance companies provide funds to businesses in exchange for a percentage of the businesses’ revenue,” and “typically, a merchant cash advance company will make daily withdrawals from the business’s bank account until the obligation has been met” (FTC press release on RAM Capital, January 2022).
Texas lawmakers describe the same structure. Their bill analysis says these deals provide “an upfront cash payment in exchange for a percentage of future sales revenue” and are “structured as ‘sales-based financing'” (Texas HB 700 bill analysis).
In plain terms, you get cash now, and the provider is repaid out of your sales. The withdrawals are the part to watch, because the FTC says they are typically taken daily.
Is a merchant cash advance a loan?
The Texas bill analysis describes these products as “sales-based financing.” Its sponsor’s statement says they “resemble traditional loans” but lack the same oversight, and that they are “currently not disclosed as loans” (Texas HB 700 bill analysis).
In its 2024 lawsuit, New York’s attorney general alleged that Yellowstone provided loans rather than MCAs. Yellowstone settled and is no longer part of the litigation. The remaining litigation is against Delta Bridge (Cloudfund) and individuals (New York AG Yellowstone settlement page).
Read what the contract requires you to pay and how often. The payment terms are the part you can check on your own paperwork.
Are merchant cash advances regulated?
Here is how each one applies.
- Federal Trade Commission. The FTC has sued MCA providers and banned some from the industry. Its cases allege violations of the FTC Act and the Gramm-Leach-Bliley Act (FTC, RAM Capital), and in one case the Telemarketing Sales Rule (FTC, Seek Capital).
- Texas. The Texas HB 700 bill analysis describes proposed disclosure, registration and penalty requirements for MCA providers and brokers (details below).
- New York. The attorney general sued and settled with Yellowstone and takes complaints about MCAs (New York AG).
- Federal small business credit data. The CFPB’s Section 1071 rule requires covered financial institutions to compile and submit certain data on applications for credit from women-owned, minority-owned, and small businesses. The CFPB issued a final revision on May 1, 2026, and extended the compliance date to January 1, 2028 (CFPB Section 1071 rulemaking page). The CFPB page describes this as data collection for covered applications for credit.
Texas HB 700 bill: what the engrossed bill would require
The Texas bill analysis describes HB 700 as it stood in its engrossed version on May 22, 2025, with an effective date of September 1, 2025. Under the bill as analyzed:
- Disclosure. Providers would disclose all costs associated with the funds, payment frequency, and the requirements of the extended offer, for funding below $1 million.
- Registration. Brokers must register with the Office of Consumer Credit Commissioner. A provider doing business on the effective date must register by December 31, 2026. The analysis uses “registration” rather than license.
- Confessions of judgment. A contract with a confession of judgment or similar provision is void and unenforceable.
- Penalties. A civil penalty of $10,000 for each violation.
- Reach. The chapter applies to providers that offer these products over the internet to recipients in Texas, whether or not the provider has a physical presence in the state.
Check the final enacted text on the Texas Legislature’s site before relying on these details. If your business is in Texas, ask any provider whether it is registered.
FTC business-financing enforcement cases
These are the dated FTC cases covered here. Each describes what the agency alleged or what a court found in that case.
| Date | Case | What the FTC alleged or the court found | Result |
|---|---|---|---|
| January 2022 | RAM Capital Funding and Tzvi Reich | Alleged deception since 2015, including requiring personal guarantees and upfront fees after saying they would not, providing less funding than promised, debiting more than stated, unauthorized withdrawals and confessions of judgment. | Permanent ban from the MCA and debt collection industries; $675,000 to settle; defendants ordered to vacate judgments and release liens. |
| October 2023 (permanent injunction); February 2024 (judgment) | Jonathan Braun and RCG Advances | A jury found, in a January trial, that Braun knowingly violated the Gramm-Leach-Bliley Act by deceiving small businesses about the amount of funding. The FTC also alleged unauthorized withdrawals and misuse of confessions of judgment. | $20.3 million in monetary relief and civil penalties, including $3,421,067 to redress harm and $16,956,000 in civil penalties; permanent ban from the MCA and debt collection industries. |
| October 1, 2025 (final order); November 2025 (announced) | Seek Capital and Roy Ferman | The FTC release describes Seek Capital as a business financing firm. The court found misrepresentations about lender relationships, 0% financing, upfront fees and credit score effects, and that the contracts violated the Consumer Review Fairness Act. | Monetary judgment of $48,280,328, suspended in part; permanent ban from business financing, debt relief and credit repair services. |
The Seek Capital judgment is suspended in part because the defendants could not pay the full amount. The full amount will be due if they are found to have made misrepresentations about their finances.
Warning signs the FTC describes
The FTC’s releases describe these practices. If you see any of them in a quote or contract, slow down and ask questions in writing.
- Requiring personal guarantees and upfront fees after saying they would not (RAM Capital).
- Providing less funding than promised (RAM Capital).
- Debiting more from your bank account than the provider said it would (RAM Capital).
- Unauthorized withdrawals from your account (RAM Capital; Braun).
- Confessions of judgment, which let a provider go straight to court and obtain an uncontested judgment in case of alleged default (RAM Capital; Braun).
- Misrepresenting the terms of the financing (Braun).
- Advertising no upfront fees, then charging heavily when you try to cancel (Seek Capital).
- Collection tactics, including threats of physical violence (RAM Capital).
- Marketing the FTC describes as “aggressive, and potentially misleading,” in its February 2020 staff perspective cited in the RAM Capital release.
New York’s Yellowstone settlement
New York Attorney General Letitia James sued Yellowstone Capital and its subsidiaries in March 2024. The court entered the settlement on January 16, 2025, and the attorney general’s page was last updated April 16, 2026. According to the attorney general:
- All merchant debts to Yellowstone, totaling $534 million, were automatically canceled.
- Legal actions Yellowstone took against merchants were vacated, and Yellowstone terminated some UCC liens on request.
- Yellowstone and its two settling executives are permanently barred from the MCA industry.
The claim period for settlement payments closed January 9, 2026. Payments were mailed April 3, 2026, and the settlement fund was not enough to compensate every victim in full. The settlement applies only to Yellowstone companies, not to Delta Bridge or Cloudfund.
Did my MCA come from a Yellowstone company?
The attorney general’s page gives these steps:
- Check the top of your contract and the first paragraph. The name may be a doing-business-as name.
- If you lack the contract, check old emails. The person you dealt with may have been an intermediary.
- Check your bank statement for the name of the company debiting your account.
- Compare the name with the attorney general’s list of Yellowstone companies.
What if a provider is still collecting from me?
The New York attorney general takes complaints about MCAs, including Yellowstone continuing to collect. For settlement relief, the page directs you to the Rust settlement administrator’s website. The attorney general cannot give legal advice, so for questions about your rights, speak with your own lawyer.
What do borrowers report about costs?
The Federal Reserve Banks’ 2025 Small Business Credit Survey covers all small-business financing, not MCAs alone. It was fielded September 3 to November 14, 2025, and received 6,525 responses. It found:
- 38% of firms applied for a loan, line of credit or merchant cash advance in the prior 12 months.
- Of applicants, 42% received the full amount sought, 36% received some or most, and 22% received none.
- Sixty percent of firms that borrowed from online lenders reported actual borrowing costs higher than expected. Four percent reported lower costs.
Rates are also moving. As of October 28, 2026, the Federal Reserve kept the federal funds target range at 3¾ to 4 percent (Federal Reserve FOMC statement, October 28, 2026). NFIB’s September 2026 report says small business borrowers reported higher rates on their recently received loans (NFIB September 2026 report). For variable-rate SBA loans, the lender may require a different payment amount when the interest rate changes (SBA 7(a) loans page).
Are merchant cash advances a good idea for my business?
That choice is yours, and it depends on your sales, your cash needs and the contract terms. This comparison sets the MCA structure beside two SBA programs.
| Feature | Merchant cash advance | SBA 7(a) loan | SBA 504 loan |
|---|---|---|---|
| Who provides it | The MCA provider | A lender, with an SBA guarantee; SBA does not lend directly | A Certified Development Company with a senior lender |
| Structure | Upfront payment for a share of future sales | Most 7(a) term loans are repaid with monthly principal and interest | Long-term, fixed-rate financing for major fixed assets |
| Repayment | Share of revenue, typically by daily withdrawals (FTC) | Monthly payments; fixed-rate payments stay the same | 10-, 20- and 25-year maturity terms |
| Maximum amount | Ask the provider for the amount in writing | $5 million | $5.5 million |
| Working capital | Ask the provider how the funds may be used | Allowed, short- and long-term | Not allowed |
The SBA 7(a) page lists the uses for a 7(a) loan, including working capital, refinancing business debt, and purchasing machinery and equipment. Find a participating lender through SBA’s 7(a) loan page and Lender Match tool. For 504 loans, the page says the loan is available only through Certified Development Companies, and SBA’s 504 loan page lists the eligible assets. To compare other routes, see merchant cash advance alternatives. If your customers pay on invoices, see invoice factoring companies for another funding route.
SBA 7(a) rate ceilings and terms
As of October 28, 2026, the SBA 7(a) Working Capital Pilot page sets these maximum rates above the base rate:
| Loan size | Maximum rate above base rate |
|---|---|
| $50,000 or less | +6.5% |
| $50,001 to $250,000 | +6.0% |
| $250,001 to $350,000 | +4.5% |
| $350,001 and greater | +3.0% |
The pilot’s maximum loan maturity is 60 months. SBA guarantees 85% of loans of $150,000 or less and 75% of larger loans.
Does SBA give free money?
Not generally for starting or expanding a business. SBA says it does not provide grants for that purpose. Its grants go to nonprofits, Resource Partners and educational organizations (SBA grants page).
Before you sign: what to ask a provider
Ask for these in writing before you accept any offer:
- All costs associated with the funds, payment frequency, and requirements of the extended offer. The Texas HB 700 bill analysis describes these disclosures for funding below $1 million.
- The exact legal name of the company on the contract. Check for a doing-business-as name.
- Whether the contract includes a confession of judgment or a personal guarantee.
- Any fees on cancellation or early payoff.
- Whether the provider reports to credit bureaus.
- If you are in Texas, whether the provider is registered, and the registration deadline of December 31, 2026 under HB 700 as analyzed.
This is general information for business owners, not legal or financial advice.
Merchant cash advance questions answered
Is a merchant cash advance legal?
The FTC and the New York attorney general have acted against specific MCA providers for alleged deception and unlawful practices. The Texas HB 700 bill analysis describes proposed registration and disclosure rules.
Is a merchant cash advance a loan?
The label is disputed. The Texas bill sponsor’s statement says MCAs resemble traditional loans, and New York’s attorney general has alleged that Yellowstone provided loans rather than MCAs. Read the contract’s payment and default terms.
Do merchant cash advances report to credit?
Ask the provider in writing before you sign whether it reports to credit bureaus.
How do I stop an MCA company from collecting?
For a Yellowstone MCA, file a complaint with the New York attorney general. For any other provider, speak with your own lawyer about your rights.
By USPatriotNews.com Editorial Team
