Fed's Beige Book Names Merchant Cash Advances for the First Time in 15 Reports
The Federal Reserve's October Beige Book, released October 14, contains a sentence funders have not seen in nearly two years of these reports. In the Kansas City District section, organizations serving small businesses said their clients' finances were deteriorating, that the Small Business Administration had implemented tighter lending standards, and that "small businesses were increasingly seeking liquidity through merchant cash advances (MCAs), often to cover overhead and payroll expenses."1 2 The same contacts added that "the high cost of MCAs and the lack of education about this funding product have exacerbated the difficulties faced by small businesses."2
We searched the district pages of all 15 Beige Books published from January 2025 through October 2026 for the phrase "merchant cash." This paragraph is the only match.3 It puts MCAs, payroll and tighter SBA standards in one Fed-published paragraph, and it names MCA cost as part of the strain.
Bottom line for funders (our read): expect more of your applications to come from merchants that SBA or a bank turned away, with weaker cash flow and payroll as the use of funds, and expect the cost of your product to be part of how those deals are judged. The last section says what to do about it.
The limits, in one place. The Beige Book reports what contacts outside the Federal Reserve told it, not the views of Fed officials, and it gives no count of merchants, no dollar volume and no price.1 Our search did not go back before 2025. The regional survey figure below covers a census division that overlaps the Kansas City District only in part.
What Alternative Business Lenders Need to Know
What else did the October report say about small-business credit?
The Kansas City paragraph sits under Community Conditions, the part of each district report drawn from nonprofits, lenders and other groups that work with lower-income households and small firms. It put the MCA sentence after two others: deteriorating credit quality and cash flow, then tighter SBA standards.2
Two other districts described tighter small-business credit. In Atlanta, institutions left SBA lending, while "niche lending continued to show the strongest growth, driven by specialized consumer and business loans, and loans to non-depository institutions."4 In San Francisco, "some lenders reportedly tightened terms for small businesses and certain commercial real estate projects."1 Neither district mentioned MCAs.
How common were MCAs before the tightening?
The best public baseline is the Fed's own Small Business Credit Survey, fielded September 3 to November 14, 2025 across 6,525 employer firms with 1 to 499 employees.5 Two measures from its data appendix are worth keeping apart. Asked which financing they sought in the prior 12 months, 8% of all firms named an MCA. Among firms that applied for a loan, line of credit or MCA, which was 38% of firms, 12% applied for an MCA and 20% for an SBA loan or line.5 6 The two questions differ: the first was asked of every firm, while the applicant split covers only firms that applied, so 12% of the 38% who applied works out to about 4.6% of all firms; our reading is that the gap with 8% reflects firms that looked for an MCA without completing an application.6
Funding outcomes were close to other credit. Of firms that applied for an MCA, 48% received all the financing they sought, close to the 52% rate across all applicants, and 96% of those approved accepted the offer.6
The regional number is what makes the October paragraph news. In the West North Central census division, which includes Kansas, Missouri and Nebraska, 5% of firms sought an MCA, against 8% nationally.6 That division, which shares Kansas, Nebraska and part of Missouri with the district, started below the national rate, and Kansas City contacts now describe small businesses as "increasingly" turning to MCAs.2 The survey cannot measure that rise, but it shows the rise started from a lower base.
The survey closed before the SBA rule change described below and before the fiscal-year totals we reported on October 10, when SBA approved 21,881 fewer 7(a) loans than a year earlier.7 We found no primary source that has measured how much demand has moved from SBA to MCAs since. In the 15 reports we searched, the October Beige Book is the first Fed-published sign of it.
Can a merchant refinance today's advance into SBA later?
Not quickly. Under SOP 50 10 8.1, effective October 1, an active merchant cash advance cannot be refinanced into an SBA loan. It becomes eligible only after it has been converted to a term loan, amortized for at least 24 months, with no new agreements since the conversion.8 9 A merchant who takes an advance this month because SBA said no cannot plan on an SBA refinance next quarter. Sales teams should not make that promise, and should correct it when a merchant raises it.
What does an SBA decline mean for credit risk?
The Kansas City paragraph puts events in order: these merchants met tighter SBA standards first, amid what contacts called "worsening credit quality and reduced cash flow."2 A merchant that a bank or SBA lender turned down has already failed someone else's underwriting, and the Fed survey shows where MCA demand concentrates: 28% of high-credit-risk firms sought an MCA, against 5% of low-risk firms.6
Our read: a merchant using an advance to meet payroll is covering a cash gap, not funding growth, and is more likely to seek a second position while the first is still remitting. That is a stacking and nonperformance risk to price and monitor, not a reason to decline the segment.
Why does the line about cost and education matter to funders?
Beige Book language does not make policy, and we are not aware of any regulator acting on this sentence. It will still be quoted. A Fed document linking MCA cost and borrower understanding to small-business hardship is ready-made material for advocates and legislators drafting disclosure bills.
In the Kansas City District, the rules already differ by state. Kansas has required cost disclosures since July 1, 2024 on commercial financing of $500,000 or less, including accounts receivable purchase transactions, for providers that complete more than five such deals a year.10 11 Missouri, whose western part lies in the district, has a 2024 law that requires providers to disclose and brokers to register for transactions of $500,000 or less.12 The district's other states, Colorado, Nebraska, Oklahoma, Wyoming and northern New Mexico, are not among the ten states that Venable counted with commercial financing disclosure laws as of March 2026.13 14 A funder writing across the district works under Kansas rules, Missouri rules or no commercial financing disclosure statute, depending on where the merchant is, as of Venable's March 2026 count.
What should funders do now?
Verify use of funds from bank statements. Self-reported purpose is weak. Flag files whose statements show payroll debits the account cannot cover, and track nonperformance (missed, reduced or stopped remittances) on those advances separately from the rest of the book each month.
Set a written position cap at renewal. Count existing daily and weekly funder debits on the latest statements for every renewal, not only new files. Set the cap from your own book: find the position count above which past renewals moved into nonperformance, write it into credit policy, and decline or reprice above it.
Disclose the cost in dollars even where no statute requires it. Statutes follow the merchant's state, and the five district states listed above have no disclosure statute on Venable's list. Giving those merchants total repayment, total cost and payment schedule the way Kansas and Missouri require answers the cost-and-education complaint the Fed's contacts raised.
Treat term conversion as a legal and funding decision, not a sales tool. SBA's rule describes one route to SBA credit: conversion to an amortizing term loan that runs 24 months without new advances. A converted advance is a loan, so state lending-license and rate rules may apply; check them with counsel. Two larger risks come with it. First, in our view a regular conversion program hands a merchant's lawyer or a bankruptcy trustee evidence to argue your advances were loans all along. Courts already test that question: in July, a federal bankruptcy judge in New York held that 19 MCA agreements were loans under New York law, applying the three factors New York courts usually weigh: whether there is a reconciliation provision, whether the agreement has a finite term, and whether the funder has recourse if the merchant files for bankruptcy.15 Second, check whether your warehouse agreement's eligibility criteria exclude modified or restructured receivables; if they do, converted paper leaves your borrowing base. Clear both with counsel and your capital provider before offering conversion.
Detect the SBA decline instead of only asking about it. Ask every applicant whether a bank or SBA lender declined them in the past six months, then check the file: a bank line of credit closed or no longer drawn, bank loan payments that stopped, and recent inquiries from SBA lenders on the credit report. Track the share of files showing those signals month by month. It will show the shift in your own pipeline before any survey does.
Our Opinion
Read the Atlanta line next to the Kansas City line. In the same report, Atlanta contacts said several institutions left SBA lending while niche lending, including loans to non-depository institutions, grew fastest.4 Our read, which the next report can test: some of that lending is moving from the merchant to the funder. The risk moves with it, one step removed.
That makes the next warehouse conversation predictable. A capital provider that reads the Kansas City paragraph will ask for the numbers the Fed's contacts did not give: payroll-purpose share, position counts at funding and performance by vintage. Funders who can produce them will defend their advance rates. Funders who cannot should expect a lower advance rate or a tighter concentration limit on that paper.
The test comes in the next Beige Book, which the Fed has scheduled for November 25.3 "Non-depository institutions" also covers private credit and mortgage companies, so one district is not a trend. If two or more districts report SBA exits or growth in lending to nonbanks, treat the shift as real and have payroll-purpose share and position counts ready before your next warehouse renewal. Start building them now; they take months of data.
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Headlines You Don’t Want to Miss
Fundfi Merchant Funding, a New York revenue-based financing provider founded in 2020, said on October 13 that it closed a senior secured credit facility with what it called a prominent institutional asset manager, to grow lending in the United States and Canada. Brean Capital acted as exclusive financial advisor and sole placement agent.16 The release does not name the lender or give the facility's size, pricing, advance rate or term, and we found no independent report or filing.16
Our read: institutional asset managers are still writing senior lines to revenue-based funders, and this one went through a placement agent. If you are raising or renewing a line, run it the same way: get competing term sheets and compare advance rates and eligibility criteria line by line, because no public deal gives you a benchmark.
The Conference of State Bank Supervisors' 2026 survey of about 330 community banks in 35 states, presented October 6 at the St. Louis Fed's Community Banking Research Conference, found 60.2% rated deposit erosion and reduced lending capacity as a most or moderately impactful effect of stablecoin adoption on their banks.17 18 Close to 18% said they plan to offer tokenized deposits and 16% plan to offer stablecoin services.17
Our read: the banks themselves pair lost deposits with less lending. If that happens, the merchants they stop serving reach you with a closed or shrinking bank line, one of the decline signals in the steps above. Add that check to intake now.
Bloomberg reported on October 16, as relayed by Briefs, that Partners Group turned down hedge funds seeking to join Emeria's approved lender list and barred distressed-credit investors from Ammega's financials and debt; it put Emeria's March 2028 loan near 70 cents on the euro, Ammega's around 79 and Breitling's roughly 82.19 In August, Bloomberg reported about €6 billion of debt due in 2028 across the three, and Partners Group said, "These three businesses are not in a stressed situation."20
Our read: the same tool sits in an MCA funder's warehouse agreement. If your lender ever sells your line, the eligible-assignee definition plays the white list's role, so check who it allows to buy your line.
Sources
1 Federal Reserve Board | The Beige Book: Summary of Commentary on Current Economic Conditions, October 2026 (Oct. 14, 2026)
2 Federal Reserve Board | Beige Book, Federal Reserve Bank of Kansas City district report, October 2026
3 Federal Reserve Board | Beige Book archive, January 2025 to October 2026 district reports
4 Federal Reserve Board | Beige Book, Federal Reserve Bank of Atlanta district report, October 2026
5 Federal Reserve Banks | 2026 Report on Employer Firms: Findings from the 2025 Small Business Credit Survey (Mar. 3, 2026)
6 Federal Reserve Banks | Small Business Credit Survey 2025, employer firms data appendix (xlsx)
7 Beyond Banks | SBA approved 21,881 fewer 7(a) loans (Oct. 10, 2026)
8 U.S. Small Business Administration | SOP 50 10 8.1 Technical Policy Updates, effective Oct. 1, 2026
9 U.S. Small Business Administration | Information Notice 5000-880695, Issuance of SOP 50 10 8.1 (Aug. 14, 2026)
10 Kansas Legislature | Senate Bill 345, enrolled, Commercial Financing Disclosure Act (2024)
11 Mayer Brown | Kansas Enacts Commercial Finance Disclosure Law (June 2024)
12 Mayer Brown | Missouri Regulates Providers and Brokers Under New Commercial Financing Law (Sept. 12, 2024)
13 Federal Reserve Bank of Kansas City | From the Vault: How the Tenth District's footprint took shape (Apr. 24, 2024)
14 Venable LLP | State Commercial Financing Disclosure Laws: Recent Developments and Compliance Considerations (Mar. 2, 2026)
15 U.S. Bankruptcy Court, S.D.N.Y. | Togut v. eProdigy Financial, LLC (In re Kossoff PLLC), Adv. Pro. No. 23-01109 (DSJ), Opinion on cross-motions for partial summary judgment (July 27, 2026)
16 Fundfi via ACCESS Newswire | Fundfi Announces Closing of Senior Credit Facility to Support Small Business Growth (Oct. 13, 2026)
17 Conference of State Bank Supervisors | 2026 CSBS Annual Survey of Community Banks, Figure 33 (Oct. 2026)
18 American Banker | Majority of community banks express concern over stablecoins (Oct. 6, 2026)
19 Briefs, relaying Bloomberg | Partners Group leans on lender white lists to keep hedge funds out (Oct. 16, 2026)
20 Bloomberg via Swissinfo | Partners Group is facing a €6 billion wall of debt refinancing (Aug. 31, 2026)
