Five years of MCA —
2020 to 2025.

The five-year period from 2020 through 2025 is the most consequential stretch in the modern history of merchant cash advance and revenue-based small business finance. A pandemic shut the industry down for months. A recovery cycle drove record advance volumes through 2021. State disclosure laws fundamentally changed how offers are presented. Confession of Judgment enforcement was reformed in New York. Machine-learning underwriting matured from novelty to standard. And the broker channel consolidated through attrition. Every one of those changes is permanent.

2020: The freeze

When the COVID lockdowns started in March 2020, the MCA industry essentially stopped funding new deals for roughly 60-90 days. The mechanic was simple: every existing daily-debit file was suddenly exposed to a revenue base that had dropped 30-90% overnight. Funders who had been comfortable with a 12% holdback rate on a stable revenue base were now facing the possibility that holdback wouldn't clear because the revenue base itself had collapsed. Multiple large funders paused originations entirely while they assessed the damage to their existing books.

The Paycheck Protection Program (PPP) and Economic Injury Disaster Loan (EIDL) programs absorbed most of the small business credit demand during that window. Trillions of dollars in federal capital flowed to small businesses at terms no private funder could compete with. By the time mainstream MCA funders began re-opening originations in mid-summer 2020, demand had also dropped — businesses with PPP funds and EIDL loans didn't need private capital. Industry volumes for 2020 were down roughly 60% from 2019.

2021: Record volumes

The recovery cycle began in earnest in early 2021. Businesses that survived the lockdown emerged with rebuilt deposits, depleted PPP capital, and aggressive growth plans. Demand for working capital spiked. The MCA channel met the demand: 2021 ended with industry volumes meaningfully above 2019 levels and significantly above 2020. Average advance sizes increased, broker commission grids expanded, and aggressive lenders re-entered the market.

The 2021 boom also produced a lot of stacked files. Brokers who had been hungry during the 2020 freeze were aggressive in 2021, and many merchants who had taken one advance to rebuild from the lockdown took a second and third as growth opportunities (or pressures) emerged. The stacking exposure that built through 2021 wouldn't fully surface as default risk until 2022-2023, but the seeds of the subsequent cleanup cycle were planted during the boom.

2022: Cooling and the SB 1235 effective date

By mid-2022, the easy-money phase was clearly over. Inflation drove the Federal Reserve to begin aggressive rate increases, and the cost of capital for MCA funders rose meaningfully. Default rates on the 2021 vintage advances began to climb as stacked merchants ran into cash flow walls. Funders tightened underwriting, cut broker commission grids, and reduced the maximum advance sizes they were willing to write. Industry volume declined from the 2021 peak but remained well above 2020 levels.

The other significant 2022 development was the operative effective date of California's Senate Bill 1235 on December 9, 2022. After four years of regulatory drafting following the 2018 signing, California became the first state to require standardized commercial financing disclosures. Every offer to a California small business under the $500,000 threshold now had to include a disclosure form showing total cost, payment schedule, and an APR-equivalent figure. The compliance scramble at lenders ran through the second half of 2022; by year-end, most mainstream funders had compliant disclosure forms in production.

2023: New York joins, COJ practice stabilizes

New York's commercial financing disclosure law took operative effect in August 2023, becoming the second major state regime. New York had been the legal center of gravity for the MCA industry for a decade — most contracts named New York as choice of law, most major funders had New York operations, and most COJs were filed in New York courts — so the New York disclosure requirements immediately affected a large share of the industry's contract templates.

The 2023 COJ environment was the post-reform steady state. Following New York's 2019 reform limiting enforcement of New York COJs against out-of-state defendants, many funders had dropped COJ requirements entirely. By 2023, COJs were uncommon on mainstream MCA contracts and were primarily reserved for in-state files where the law still permitted enforcement. The aggressive 2017-2018 enforcement environment that had produced widespread out-of-state bank account freezes was effectively over.

Default rates on the 2021 vintage continued to work through the system during 2023. The workout desk volume — consolidations, restructurings, settlements — was high, and several mid-size funders exited the market or were absorbed by larger platforms.

2024: Georgia and Connecticut, ML underwriting matures

Georgia's commercial financing disclosure law became operative in mid-2024, followed by Connecticut and Virginia rolling out their own variants. Utah, which had passed disclosure legislation earlier, also entered effective-date status during the year. The patchwork of state requirements meant that funders operating nationally had to either maintain multiple disclosure templates or standardize on the most rigorous form (typically the California or New York version) for all states. Most mainstream funders chose standardization, which meant merchants in non-disclosure states were also seeing standardized disclosures by default.

The other major 2024 development was the maturation of machine-learning underwriting. Plaid and similar bank data aggregators had become standard plumbing by 2024, and the major MCA platforms had built ML scoring models that ingested live bank data and scored files in seconds. The seven-signal manual screening underwriters used to do at the desk became, in effect, an ML feature set with dozens of derived signals layered on top. First-decision times at the biggest platforms dropped from hours to minutes for clean files. Decline rates on stacked files rose because the models were better at identifying them.

2025: Steady state, with a cleaner channel

By 2025, the industry had settled into a recognizable steady state. Total volume in 2024 was roughly 2.5x the 2020 trough and meaningfully above the 2019 baseline. Average advance sizes were higher, average factor rates were comparable to the 2019 baseline, and the broker channel had consolidated substantially. The aggressive single-shop operations that had dominated the 2017-2021 broker landscape had largely exited; the surviving broker shops tended to be larger, more disciplined, and more selective about lender relationships.

The disclosure environment continued to expand. More states were drafting their own versions of the California and New York models, and a federal small business financing disclosure framework had been periodically proposed in Congress without passing. The state-by-state expansion seemed likely to continue at the rate of one to three new states per year for the foreseeable future.

What's permanently different

Three changes from the 2020-2025 period are now structural features of the industry. The first is disclosure. Standardized commercial financing disclosures with APR-equivalent figures are now the default in major markets, and most mainstream funders show them nationwide. Merchants comparing offers in 2025 have a standardized cost language they didn't have in 2020.

The second is data integration. Live bank data through Plaid and similar aggregators has displaced uploaded PDFs as the dominant underwriting input at the top platforms. The implication is that merchant statements are reviewed in near-real-time rather than after a 24-72 hour upload-and-review cycle, and that ML-driven scoring runs on live data continuously rather than at point-in-time application review.

The third is broker discipline. The mainstream broker channel in 2025 is smaller, more concentrated, and more aware of regulatory exposure than the 2020 channel was. Aggressive stacking strategies that were normal in 2017-2021 are now flagged by lenders' ML models and produce immediate decline. The enforcement environment, while less aggressive than the COJ-era peak, includes meaningful regulatory scrutiny from state agencies that didn't exist five years ago.

What merchants should expect going forward

The market that emerges from this five-year arc is more transparent, faster, and more data-driven than what came before. Merchants with clean files get funded faster and at sharper pricing than they would have in 2020. Merchants with weak files face more scrutiny and tighter pricing than they would have at the 2021 peak. The middle of the market — files with one or two of the seven stack-test signals — is where pricing has compressed least and where the channel choice (direct vs broker, ML-driven vs human-underwritten) matters most.

For operators thinking about capital strategy in 2025 and beyond, the takeaway is that file quality matters more than it used to, broker relationships matter less than they used to, and the standardized disclosure tools make it easier than ever to compare offers head-to-head. The merchants who use those tools — running the stack test on themselves before applying, comparing direct and brokered quotes, reading the disclosures rather than skipping past them — consistently fund at better terms than the merchants who don't.