Merchant Cash Advance Industry Insights and Stats in 2021

A merchant cash advance is a short-term funding solution for companies looking for finance for an exchange of future debit or credit card sales. This is basically a lump sum payment in the form of credit. Let’s call it a money-purchasing process, not a loan, in which the global MCA market has been steadily growing along with MCA lead generation.

Why is this important to you?

The study of merchant cash advances includes statistics of the past few years forecasting the future that provides a comprehensive idea of the MCA funding market with ample future possibilities.

MCA market members can go through the assessment and geographic information collection with a market breakdown.

Lending statistics show the reason behind failure and a scenario of an approval rate.

Merchant cash advance industry:

Over the past few years, the MCA industry has been growing at 20% per year till 2020.

Even after the COVID-19 pandemic, merchant cash advances were approved at a rate of 84%.

According to previous market analysis, the growth rate has never been slower.

In 2021, till November, with an approval rate of 85%, the merchant cash advance industry encountered the most elevated advancement among all types of funding. Nowadays, the MCA companies generate 5 to 10 billion dollars in advances every year in the US. 

This year, small businesses are anticipating growth capital of up to $600,000.


Impact of CoVID-19:

A huge number of nations around the world have been afflicted due to the COVID-19 pandemic.

The World Health Organization (WHO) has announced the period as a “public health emergency“. Due to the lockdowns and organization shutdowns, existing small businesses were running out of money. 

Additionally, throughout the lockdown period, cash usage has decreased noticeably as business owners have begun to shift their current product offers to online platforms. So, during the global crisis, the demand for cash advances has skyrocketed.

As the MCA companies were ready for online funding within a relatively shorter time,  business owners began relying on them to recover from losses.

However, not only during the global epidemic but also afterward, merchant cash advances played a significant role in assisting businesses in overcoming the COVID-19 closure.


Merchant cash advance market segmentation by sum range:

There are three types of cash advances available for the participants:

  • Starts from $5,000 to $250,000 USD
  • Mid-level advances range from $250,000 to $500,000
  • The highest range is above $500,000

Market segmentation of merchant cash advances based on business period:

  • 6 months
  • From 6 months to 12 months 
  • Between 12 and 18 months

Detailed discussion about MCA market segmentation:

The MCA industry has been segmented according to market types, deployments, service providers, regions, and end-users.

The marketplace has been divided into credit card cash advances, merchant cash advances, pay loans, etc.

If we talk about deployment, the market is categorized into online and offline.

MCA Market Segmentation
Segmenting businesses by basing industries for a diversified investment portfolio

Now, in terms of service providers, the MCA market is divided into banks, credit card companies, and other financial organizations.

The end users are personal advanced and commercial users. And finally, the marketplace is analyzed across a few regions.

The regional market zones are North America, Europe, Asia-Pacific, and Latin America, as well as the Middle East and Africa.

The key players in the merchant cash advance industry:

Within a few years, merchant cash advance market players have placed themselves in a strong competitive zone, witnessing a lot of new players taking place with strong marketing strategies. 

Here’s a presentation of key players in the MCA industry:

  1. Rapid Finance: In 2021, Rapid Finance was the top-rated player in the market. Any business that has been in operation for three months with a credit score of 550 can apply for an MCA loan. They provide up to $50000 with a 1.22 factor rate. This company offers super fast service within 24 hours.
  2. CAN Capital: The next key player is CAN Capital. They don’t have any minimum credit score requirements. With a factor rate of 1.15 to 1.48, you can be provided up to $250000 MCA funds. You’ll receive quick funding within two business days. CAN Capital usually charges $595 for all MCA products.
  3. National Funding: You can apply for national funding advances of up to $250000.Their factor rates range from 1.17 to 1.36. National Funding necessitates at least one year of business and a monthly credit card transaction of more than $3,000. very fast funding within 24 hours.
  4. Reliant Funding: A key player in the marketplace that provides up to $250,000 in funding to small businesses. There is no specific credit score, but six months of business cotinuity and $10,000 in monthly credit or debit card sales.
  5. Kalamata Capital Group is the next company on our list. Kalamata requires at least one year of business experience, a minimum 500 credit score, and $250,000 in annual business revenue.

This company provides MCA up to $500,000. with a low factor rate range of 1.12

MCA total cost calculation:

Your cash advance total cost is determined by factor rates with an adjusted percentage of overall administrative charges.

The factor rate depends on your business credit sales and overall lending risk. The higher the factor rate, the higher the total cost will be.

 For example, let’s say you’ve taken a $30000 merchant cash advance with a factor rate of 1.20 and 2 percent administrative cost. Now, add the factor rate charge and administrative cost to the main amount and find out the total cost. 

$30000 multiplied by 1.20 equals $36000, and $30000 multiplied by 2% equals 600. So the total cost will be $36,600.

Market segmentation:

The MCA service market has been segmented according to market types, deployments, service providers, regions, and end-users.

The marketplace has been divided into credit card cash advances, merchant cash advances, pay loans, etc. on the basis of industries.

If we talk about deployment, the market is categorized as online or offline.

In terms of service, the MCA market is divided into banks, credit card companies, and other financial organizations.

The end users are personal, advanced, and commercial users; finally, the marketplace is analyzed across a few regions.

The regional market zones are North America, Europe, Asia-Pacific, and Latin America, as well as the Middle East and Africa.

Market-Segmentation
Dividing customer-base in terms of geography where interest rates and policies differ
A comparison between traditional bank loans and MCA:
According to statistics, small business owners have a 5% chance of obtaining a traditional bank loan. Also, the approval period is comparatively shorter for MCA or other quick lending options; however, for a bank loan approval, it takes almost 30 to 90 calendar days. On the contrary, MCA offers a high chance of approval rate for business owners. With an almost 90% approval rate, the MCA industry has been serving consumers for a long time offering various loan schemes.

If business owners deposit $25000 monthly and hold a credit score of at least 590, there’s high chance for MCA loan approval.

Besides, bank loans include prepayment penalties with no renewal options, whereas there is no prepayment penalty in MCA.

Conversely, you’ll get prepayment discount benefits and you’ll be able to renew the advance when ready. 


EndNote

The MCA industry is one of the fastest-growing industries worldwide. With an easy application process, MCA companies are providing one-stop funding solutions. For small business owners, the expanding MCA market is like a blessing that can boost their short-term needs if a significant portion of their sales happens through debit or credit cards.

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