Desperate mom-and-pops turn to risky cash advances in tough economy and can get burned

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Set us as preferred When sales began falling early this year at Brushstrokes + Beverages, a Long Beach “paint and sip” studio, the owners started looking at options to keep their decade-old business afloat.Michael Mosselli and his co-owner, Marty Meier, had taken out government-backed small business loans in the past.But this time they needed cash faster — and turned to a fix they hoped would carry them through the downturn.

Mosselli said it was a decision made “out of desperation.” Within days last February, the studio owners got $7,200 from a cash advance company based in New York.A couple of weeks later they borrowed more.The payback agreement required daily withdrawals of a fixed amount of upward of $300 from their business account until the advance and processing fees were paid off, which the company estimated would take almost two months.

But they couldn’t keep up with the daily payments, and amassed significant penalties.Eventually, they were forced to shutter their business owing more than $34,000 on the borrowed $11,850.

Mosselli and Meier had agreed to what is called a merchant cash advance, commonly called MCAs, and their circumstances offer a cautionary — and in their case, crushing example of potential pitfalls of this financial tool.The product is a largely unregulated sector of the financial industry, but one that more small-business owners are turning to as it has become harder to get bank-financed business loans and as tariffs, ICE raids and rising gas prices cut into their revenue.

It promises quick cash — but at a high cost.In 2014, merchant cash advances nationwide totaled about $8.6 billion, according to one federal agency.

By 2019, it was estimated the market had more than doubled.Analysts predict the merchant cash advance market could amount to $35 billion by 2030.

Although the money can at times save a struggling business, California lawmakers and bankruptcy lawyers s...