Opportunity came knocking at the door of Triways, a family owned trucking and warehouse business in Southern California that had successfully navigated the ups and downs of nearly a half-century of hauling goods.
Triways earned industry awards, employed some 60 workers and took in nearly $10 million in revenue in 2024. After struggling through a postpandemic slowdown, the company got an offer that year to serve Navy commissaries in California, Oregon, Washington and Florida.
“I wasn’t trying to grow, but the opportunity was put on the table,” said John Jauregui, the 70-year-old chief executive. It would require more truck trailers and more drivers, a significant upfront expense, he said. But it was a chance to transform the Jurupa Valley, Calif., company into a nationwide operation.
Getting the money was easy. Jauregui turned to merchant cash advances—MCAs for short—a legal, largely unregulated financing industry marketed on social media as a business lifeline: Cash in 24 hours or less. Easy applications. Past credit troubles, no problem.
Yet, as Jauregui and others have learned, the terms can be a killer. “I should have known better,” he said, looking back at the financial land mines laid by the cash advances.
MCA funders say they don’t issue loans, which are regulated by state and federal laws. That means they can set effective finance costs in the triple digits and higher. One of Triways’s cash advances had an estimated annual percentage rate of 2,190%, a disclosure document shows. Jauregui said he didn’t know how costly the financing would be.
The funders withdraw money directly from company bank accounts, daily or weekly, even if that leaves firms short of funds for payroll, inventory or other operating expenses.
Rather than a lifeline, merchant cash advances have been a deadly anchor for businesses around the U.S., said bankruptcy attorneys and advisers to financially troubled companies.
“An MCA can make sense for a small-business owner who has a leaky roof or other immediate need and can repay the money in 30 days,” said Michael Dal Lago, a bankruptcy attorney in Naples, Fla. “Don’t use an MCA as a line of credit. That’s a recipe for disaster.”
This year, MCA funders can dip into a growing pool of applicants—businesses walloped by inflation, tariffs and tighter credit. Small businesses have been “increasingly seeking liquidity through merchant cash advances (MCAs), often to cover overhead and payroll expenses,” the Federal Reserve Bank of Kansas City reported in October. MCAs “have exacerbated the difficulties faced by small businesses” because of their high costs, the report said.
Federal bankruptcy filings by small businesses—those owing no more than $3.4 million—rose 36% in the first nine months of 2026 compared with the same period last year, according to the American Bankruptcy Institute. Creditors in more than half of those cases included companies offering MCAs, according to an analysis of bankruptcy filings by The Wall Street Journal. Some of these companies offer only MCAs; others list several products on their websites.
Caryl Delano, a federal bankruptcy judge in Tampa, went further. “Virtually every small-business case we see has at least one and sometimes several or more MCA funders,” she said recently.
Unlike conventional lenders that try to work out repayment plans to keep companies afloat, MCA funders “don’t care whether the business makes it or not,” said Richard Cook, a Wilmington, N.C., bankruptcy attorney.
While it seems counterintuitive for an industry to put a financial stranglehold on its own clients, the high charges set by MCA funders mean they need only 30% to 40% of their contracts to pay off in full to be profitable, said Shane Heskin, a New York attorney representing Triways.
The goal is to “cut off your cash flow so you have no choice but to borrow, rob and steal to pay them off, whether it’s take out a home-equity loan, sell property,” he said, “selling assets, taking out another MCA.”
Steve Denis, executive director of the Small Business Finance Association, which estimated the MCA market at roughly $20 billion, represents members offering various financing products, including MCAs. Alternatives to traditional financing are important for businesses turned away by other lenders and need timely access to cash, he said.
Denis said group members were “committed to making sure that businesses are successful and survive using the financing tools our members offer.” He acknowledged the presence of “predatory companies that are just trying to get their money and don’t care if the business ultimately survives.” The trade group, he said, was working to eliminate abusive practices and “prevent bad actors from continuing to operate.”
Jauregui said his company had a conventional line of credit but couldn’t get additional bank financing when he took the first MCA in the fall of 2023. He planned to quickly repay the six-figure obligation. Instead, Jauregui took more advances, first to smooth over financial bumps while he waited for a tax refund check, and then to fund the new Navy job.
As the payments grew more onerous, he sought more cash advances to keep his company running, more than 30 in roughly 2½ years. New MCA offers arrived nearly every day. “It’s addictive because it’s easy to get,” Jauregui said. It solves the problem right away. “Then, at the back end, it gets worse.”
As MCA funders drained Triways’s bank accounts, Jauregui and his wife, Jackie Jauregui, juggled bills, worked harder and hoped the business would grow fast enough to turn the corner. The couple agonized about leaving employees empty-handed.
“Mrs. Jackie the check did not go through,” a Triways customer service representative texted in August. “Zelle is preferred because I don’t want to risk another check bouncing.”
Squeeze play
Banks have pulled back on small-business lending since the financial crisis two decades ago. With smaller U.S. companies on the ropes, MCA funders are filling the void.
Last year, 12% of small businesses seeking financing applied for a merchant cash advance compared with 9% in 2024, according to a survey by the regional Federal Reserve Banks of businesses with at least one employee.
“These are the glory days,” said Sean Murray, chief editor of deBanked,in an April 2026 interview about the state of the MCA industry for the trade publication’s website. “What is the state of the industry? This is the time to be in it.”
The Small Business Administration announced last year it wouldn’t refinance MCAs anymore. “Borrowers who resort to these—I almost said extortionist—borrowers who resort to going to these types of arrangements for cash” have a high fail rate, SBA Administrator Kelly Loeffler said in a presentation last year to SBA lenders.
In practice, MCA funders often squeeze as much cash as possible from struggling businesses before the firms are granted bankruptcy protection or shut their doors for good. MCA clients accept the increasingly difficult repayment conditions, in many cases, trying to salvage their life’s work and save the jobs of their employees, according to business owners who have taken out MCAs and bankruptcy attorneys.
In July 2024, Jauregui was still waiting for his tax refund for businesses that suffered from Covid-19 shutdowns. Checks from the federal program were delayed by months for hundreds of thousands of firms, including Triways. Jauregui said a broker persuaded him to take a new cash advance to help pay off his existing MCA obligations. Triways ended up worse off: It still owed money on the other MCAs, as well as on its new one.
That fall, Triways began deliveries for the Navy. Yet the daily withdrawals by MCA funders left little cash for expenses and the added costs of the new business. Triways started missing rent payments in December.
While waiting for the promised tax refund check, Jauregui turned to MCAs again and again. When the tax refund checks finally arrived in April 2025, Jauregui used all the money to pay down his company’s MCA obligations. He still owed $300,000 to $400,000. Back rent piled up, totaling roughly $1 million by June.
In September 2025, revenue from a big customer fell by roughly half for eight months. Triways took out four MCAs that obligated the company to pay an estimated total of $771,500 in exchange for roughly $470,000. About $64,000 of that went to pay off an earlier MCA.
Jauregui met with a bankruptcy attorney for advice that fall. In an October letter to the landlord, a small-business lender and four MCA funders, the lawyer said Triways owed the MCAs more than $700,000, and its net operating income was about $120,000 after rent. The lawyer proposed a repayment plan, saying MCA funders might collect only a third of what was owed if Triways ceased operations.
The lawyer advised Jauregui to file for bankruptcy liquidation if the MCA funders wouldn’t agree to reduced payments. Jauregui wasn’t ready. “I thought I could still pull it through,” he said. Weeks later, Triways’s bank closed its accounts.
On a single day in November 2025, Jauregui took out two MCAs. One deal obligated Triways to pay an estimated $674,550 in exchange for $427,500, according to financing documents. Most of the funds went to pay off three earlier MCAs and a small-business loan. Triways kept $5,815.60 for operating expenses. Triways took out another MCA 10 days later.
Triways took out another four MCAs over eight days in January 2026 and additional MCAs in February and March, most for less than $50,000. “That’s how desperate I was to make the payroll,” he said. In February this year, Triways’s landlord filed eviction papers.
Jauregui closed some company bank accounts in March, trying to keep what little cash he had left from withdrawals by MCA funders. He quickly learned the move afforded no protection.
‘Everyone loses’
When businesses fall behind, MCA funders often employ Uniform Commercial Code lien notices, asking customers owing money to a business in default to pay funders instead. The liens can also capture funds directly from credit-card processors and payment platforms such as DoorDash and Stripe.
Feast Kitchens, a small Triways customer, was told to “kindly place a hold on any funds” owed Triways and direct them to the law firm to hold on behalf of Horizon Capital NY, according to a notice reviewed by the Journal. Triways owed Horizon roughly $280,000.
A second lien notice, from a different attorney, said Triways owed Square Funding Cali roughly $379,000. A lawyer for Square Funding Cali declined to comment. Square Funding Cali isn’t related to Block, which operates the Square payment platform, he said.
Lawmakers in a dozen states have passed laws on merchant cash advances. California, Vermont and New York require disclosures on estimated annual percentage rates. The California law requires MCA brokers and funders to be licensed as finance providers.
Some bankruptcy judges have concluded the transactions are loans. Last year, New York Attorney General Letitia James secured a $1 billion settlement with Yellowstone Capital over allegations that it issued MCAs that were, in fact, illegal high-interest loans in disguise. Yellowstone neither admitted nor denied guilt in the settlement.
In April this year, Triways filed for Chapter 11 bankruptcy reorganization. In court filings, Triways cited MCA payments of $250,000 a month and the financial strain created by the UCC filings to its customers. The trucking company said it had $2.1 million in assets and nearly $6.8 million in liabilities, including more than $1.2 million owed to MCA funders.
A federal bankruptcy judge dismissed the case in June after the bankruptcy trustee reported that the company had missed payroll after the bankruptcy filing and didn’t have workers’ compensation insurance, a violation of California state law, court records show.
In August, Jauregui’s wife emailed Horizon asking to release its lien of roughly $280,000 and re-establish a monthly payment plan. “This request is not an attempt to avoid our obligations. It is exactly the opposite,” she wrote. “If the company’s final source of revenue is eliminated, everyone loses.”
“Can we refrain from sending these lengthy emails and just discuss the economics,” a Horizon lawyer wrote. “Horizon needs a number that Triways will turn over and is willing to pay weekly.” A lawyer representing Horizon declined to comment, citing pending litigation.
Triways ceased operations in September. “I tried to keep the business alive for as long as I could,” Jauregui said.
Since last week, two MCA funders have asked a New York state court to enter default judgments of more than $585,000 against Triways. A third funder asked the court to confirm a roughly $415,000 arbitration award.
In the span of around two hours Wednesday, Jauregui received a half dozen different funding offers via text. “You may qualify for up to 200k,” one said.
Write to Ruth Simon at Ruth.Simon@wsj.com and Neil Mehta at neil.mehta@wsj.com
