July 13, 2026 – By Christian Smith, Berkshire Financial Services
If you run a small business, you may use merchant cash advances, or MCAs, to cover cash flow gaps. Two recent stories should get your attention. Both show how risky MCAs can be. Both are reasons to slow down before you sign a new deal.
Brokers across the country are warning about a scam pattern making the rounds. Business owners are offered a line of credit, but only after they pay a large fee upfront. Once the merchant pays, the promised line of credit never shows up.
This is not a one-time case. In New Jersey, federal prosecutors charged eight people with allegedly running a lending scam. They targeted small business owners nationwide. Prosecutors say the group promised loans and lines of credit. In return, they allegedly asked for large fees upfront. According to the criminal complaint, the group collected millions of dollars and then broke off contact. These are still just charges. The defendants are presumed innocent unless proven guilty in court. (1)
Watch for These Warning Signs
- Large upfront fees before you get any funding
- Pressure to sign fast
- Vague or missing contract terms
- No real business address or license
- Bad or missing reviews from past clients
If a lender wants a big payment before funding you a dollar, that is a red flag. Real lenders usually take fees from loan funds. They do not ask for cash upfront.
A major MCA-related bankruptcy is also shaking up the industry. Simad Holdings, which operates a network of summer camps, filed for Chapter 11 bankruptcy in June 2026. Court filings show the company owed more than $100 million to merchant cash advance firms and other short-term lenders.
This is one of the largest MCA-related bankruptcies on record. It shows why careful underwriting matters. It shows why funders should spread out their risk. It is a lesson for funders and business owners alike.
If you have MCA debt, this story matters to you. A funder’s money troubles can affect your payments. It can change who owns your contract. It can change how flexible your lender will be. If you are looking at new financing, be careful with any upfront fee for a “line of credit.” Check it out before you pay.
If you are signing something new, or unsure about your current MCA terms, get your contract reviewed by someone who knows this industry.
What This Means for Your Contract
If your MCA funder is caught up in a bankruptcy like the Simad Holdings case, your payments or contract ownership could change. And if you’re weighing a new line of credit offer, an upfront fee is a warning sign to check before you pay. A quick review of your existing agreement can tell you where you stand.
Frequently Asked Questions
Are MCAs considered illegal loans?
No. MCAs are not loans; they are a purchase of future receivables. Because of this, they are not automatically illegal. However, some MCA agreements have been challenged in court for functioning like disguised loans with excessive rates, which can raise legal questions depending on your state.
Can MCA providers seize my assets or freeze my bank accounts?
In some cases, yes. If your contract includes a confession of judgment or personal guarantee, and you default, a provider may pursue legal action that could lead to a bank levy or asset seizure, depending on your state’s laws and your specific agreement.
What happens if I default?
Consequences vary by contract but may include daily withdrawal attempts, legal action, damage to your credit, and collection efforts against personal guarantors. Reviewing your contract’s default terms early can help you understand your options before things escalate.
Can MCA debt be settled or consolidated?
Yes, in many cases. Business owners with multiple MCA obligations may be able to negotiate settlements or consolidate their debt into more manageable terms, depending on their financial situation and the specific lenders involved.
To speak with a Berkshire Financial Services Finance Manager about your file, call 1-800-801-1019.
Informational purposes only. Not legal advice. Berkshire Financial Services is not a law firm. Results vary.
- Source: U.S. Attorney’s Office, District of New Jersey, Department of Justice press release, April 2025 (justice.gov/usao-nj).