Key Takeaways
- SBA 7(a) loan counts dropped over 27% in the latest fiscal year, pushing more small businesses toward MCA funders who need scalable bank verification software.
- Average SBA loan sizes rose 21% even as volume fell, signaling that smaller borrowers are being squeezed out of traditional lending entirely.
- MCA funders absorbing displaced SBA demand face verification backlogs unless they adopt asynchronous, AI-assisted workflows.
- Founders First Capital Partners reports 61% of its deals refinance existing MCAs, proving that layered advances create compounding verification complexity.
- Async bank verification platforms like Exact Balance let funders scale intake without adding headcount or scheduling overhead.
The SBA Lending Contraction Is Sending Borrowers Straight to MCA
The latest SBA fiscal year numbers paint a stark picture for small business financing. Loan counts in the flagship 7(a) program fell over 27%, overall volume declined roughly 12%, and the average loan size jumped 21%. As Lendesca CEO Chris Hurn recently noted in a deBanked interview, that rising average loan size is a direct consequence of smaller, more marginal borrowers being pushed out. The math is simple: when underwriting costs stay flat but risk appetite shrinks, lenders consolidate around larger, safer deals. Everyone else gets left behind.
Those "everyone else" borrowers do not simply stop needing capital. They turn to alternative lenders, and in 2026, that increasingly means merchant cash advance funders. For MCA operations already running at capacity, this influx creates an urgent question: can your bank verification software for funders handle the volume? Traditional live verification calls, scheduled one at a time across time zones, were barely sustainable before this shift. They are breaking down now.
The funders who capture this displaced demand without blowing up their underwriting timelines will win the next twelve months. The ones still relying on manual scheduling and synchronous workflows will watch deals leak to faster competitors.
Why the SBA Squeeze Hits Verification Hardest
More Applications, Same Team
When SBA loan access contracts, the ripple effect does not arrive gradually. It hits in waves. Brokers who previously split submissions between SBA lenders and MCA funders start routing everything to the MCA side. Funders see application counts spike without a proportional increase in underwriting staff. The bottleneck is not decisioning. Modern credit models can score a deal in seconds. The bottleneck is verification: confirming that the bank statements, transaction histories, and account balances a merchant presents are authentic and current.
Live verification calls compound the problem. Each call requires coordinating schedules between an underwriter and a merchant, walking through banking portals line by line, and repeating the process if anything is unclear. A single verification can consume 30 to 45 minutes of an underwriter's day. Multiply that by a 27% increase in inbound deal flow, and the math stops working entirely.
Smaller Borrowers Carry Higher Verification Stakes
The borrowers being squeezed out of SBA lending tend to be smaller, younger, and less documented. They may have thinner banking histories, more volatile cash flows, and a greater likelihood of carrying existing advances from other funders. This is precisely the population where MCA stacking fraud is most prevalent. Verifying these merchants is not optional; it is where the real underwriting risk concentrates.
For funders, skipping or rushing verification on these accounts to keep pace with volume is a recipe for losses. The alternative is building verification workflows that scale without proportionally scaling headcount. Asynchronous bank verification, where merchants record their own banking sessions on their own time and underwriters review on demand, eliminates the scheduling constraint entirely.
Refinancing Adds Layers of Verification Complexity
The SBA contraction is not the only force shaping MCA demand. Wells Fargo recently backed a fund through Founders First Capital Partners that explicitly targets MCA refinancing. According to deBanked's reporting, 61% of all deals funded by Founders First went toward refinancing existing merchant cash advances. That statistic reveals something important about the verification challenge: many merchants arriving at your door already carry one or more active advances.
Refinancing deals require funders to verify not just current bank balances and revenue, but the presence and payment status of existing obligations. A merchant with two active MCAs pulling daily ACH debits looks very different from one with a clean account. Spotting those patterns in a static PDF bank statement is difficult. Spotting them in a live, recorded banking session where the merchant scrolls through actual transaction history is far more reliable. This is where tools like Exact Balance add a layer of assurance that document-only review cannot match, because the recording captures the banking portal in real time, making manipulation nearly impossible.
How Async Verification Absorbs the Volume Spike
The core insight behind asynchronous bank verification is that scheduling is the constraint, not analysis. Underwriters can review a recorded banking session in a fraction of the time it takes to conduct a live call, because they control the playback. They can pause, rewind, and scrutinize specific transactions without asking the merchant to navigate back and forth. The merchant, meanwhile, records at whatever time works for them, whether that is 10 PM after their restaurant closes or 6 AM before their shop opens.
This decoupling of recording and review means that a funder's verification capacity is no longer bound by the number of simultaneous calls their team can handle. It scales with the number of recordings their team can review in a given day. In practice, that is a two-to-three-times throughput improvement without hiring a single additional underwriter.
Exact Balance was built specifically for this workflow. The platform sends merchants a secure link with custom instructions detailing exactly what they need to show: account summaries, specific date ranges, transaction details, and whatever else the underwriter requires. A floating AI coach guides the merchant through each step, verifying completion in real time. The underwriter receives the recording, reviews it alongside an activity log, and marks it as verified in one click. The full audit trail is timestamped and stored securely, which matters increasingly as compliance expectations tighten across the industry.
For funders watching SBA-displaced deal flow pour in, this is not a nice-to-have. It is the difference between capturing that volume and watching it walk to a competitor with a faster process.
What Displaced SBA Borrowers Look Like in Your Pipeline
Understanding who these borrowers are helps funders calibrate their verification approach. A merchant who was previously bankable enough to apply for an SBA 7(a) loan is likely a legitimate business with real revenue. They are not, by default, a fraud risk. But they may be unfamiliar with MCA mechanics, less prepared for the verification process, and potentially carrying debt from a previous attempt to bridge the gap before finding alternative financing.
These merchants benefit from a guided, low-friction verification experience. Asking them to install screen-sharing software, join a scheduled call during business hours, and walk an unfamiliar underwriter through their banking portal creates friction that can kill a deal. A browser-based recording flow, with clear instructions delivered to their inbox and an AI assistant guiding them through each step, reduces drop-off and gets the verification completed faster.
Funders should also expect to see more merchants in this cohort who have recently been declined by traditional lenders. That decline history does not automatically disqualify them for an MCA, but it does mean the underwriter needs to understand why the decline happened. Was it a credit score issue, a cash flow concern, or something structural about the business? Reviewing a full banking session, rather than a static snapshot, gives the underwriter context that a PDF never provides.
The True Food Kitchen bankruptcy this month, where the restaurant chain carried a $2.2 million MCA balance with Parafin before filing, is a reminder that even well-known brands can go from funded to bankrupt quickly. Pre-funding verification that captures real-time banking data, rather than stale documents, is the only reliable defense. As we explored in our analysis of True Food Kitchen's pre-funding verification gaps, the cost of skipping thorough verification dwarfs the cost of implementing it.
Frequently Asked Questions
What is bank verification software for funders?
Bank verification software for funders is a category of tools that help MCA lenders and alternative finance companies confirm the authenticity of a merchant's bank account data before funding. Rather than relying solely on uploaded PDF statements, which can be manipulated, these platforms use techniques like screen recording, open banking API connections, or document forensics to validate that the financial information a merchant provides matches their actual banking portal. Exact Balance takes an asynchronous approach, where applicants record their live banking session at their convenience and underwriters review on demand.
Why is the SBA loan decline increasing MCA demand?
The SBA 7(a) program saw a 27% drop in loan counts in its latest fiscal year. Smaller borrowers who no longer qualify for SBA-backed credit still need working capital, and many turn to merchant cash advances as the next available option. This shift increases application volume for MCA funders without a corresponding increase in their verification capacity, creating pressure to adopt scalable solutions like async bank verification.
How does async bank verification prevent fraud in MCA lending?
Async bank verification captures a video recording of a merchant navigating their live banking portal. Unlike static PDF statements, these recordings show the actual bank interface in real time, making it extremely difficult to present manipulated data. AI-powered tools can further analyze the recording for signs of synthetic portals, inconsistent UI elements, or edited transaction histories. The result is a fraud detection layer that catches manipulation methods that document-only review routinely misses.
Can async verification handle the complexity of MCA refinancing deals?
Yes. Refinancing deals require verifying not just revenue and balances but also existing obligations like active MCA debits. In an async recording, the merchant scrolls through their full transaction history, revealing ACH pulls from other funders that might not appear on a curated PDF statement. Underwriters can pause and examine these transactions closely, making refinancing verification more thorough than live calls where time pressure often forces shortcuts.
Conclusion
The SBA 7(a) contraction is not a temporary blip. It reflects structural shifts in how traditional lenders evaluate risk, and the borrowers being displaced are heading directly into MCA pipelines. Funders who still rely on synchronous, schedule-dependent verification workflows will struggle to absorb this volume without sacrificing underwriting quality or deal speed. The ones who adopt scalable, asynchronous verification infrastructure will capture market share while maintaining the rigor that prevents losses.
Exact Balance gives MCA funders a verification workflow that scales with demand, not headcount. Applicants record at their convenience, your team reviews on demand, and every session is timestamped and stored for compliance. Visit exactbalance.ca to see how async verification fits into your underwriting process.