Before we move on to more details, let us first define what Merchant Cash Advance is.
What is Merchant Cash Advance?
Merchant Cash Advance, in simplest terms, is quick funding for businesses, which is a great alternative to bank loan options or any other personal loan options.
Let’s say you’re a business owner running a bit low on cash and need quick capital, be it to cover monthly expenses (uncalled ones), temporary funding, or covering shortages in payroll management – Merchant Cash Advances cover most SMEs funding issues.
*MCA’s usually operate at higher interest rates than banks*
How Does MCA Work?
Merchant Cash Advance is an advance against future debit/credit card sales.
Based on the agreements, the loans can be paid off daily, weekly, monthly, or at the end of your agreed period.
Merchant Cash Advance is more flexible in terms of repayment in contrast to traditional loans.
Some MCA providers will automatically deduct an agreed amount from your daily sales generated in your merchant account till the advance is fully paid off.
Prospects of MCA Investments
Merchant Cash Advances are a relatively new form of investment for many.
If you’re an investor looking for new and innovative ways to diversify your investment portfolio then MCA can be a profitable option.
According to recent studies, MCA funding has been growing by 20% annually.
It is projected to reach $19.2 billion by the end of 2019 in the US alone, compared to its $8.6 billion industry size in 2014.
During the pandemic, a lot of businesses were struggling to survive as companies hardly qualified for business loans, and even when they did, the processing time for the loans took a long time.
This entire ordeal was a hard hit for businesses because they couldn’t afford the time required to sanction their loans.
It was evident that banks weren’t very supportive of these small and medium-sized businesses either.
Merchant Cash Advance was a lifesaver to these business owners.
Merchant Cash Advance is an excellent solution for business owners who don’t meet the qualification criteria for bank loans due to poor credit rating, financial history, etc.
Many countries like the US, UK, and Australia have Small business associations that aid SMEs in many ways. Many provide direct funding to small businesses, while others have affiliated lending partners (MCA). The business associations connect small businesses with these lenders to ensure that they receive funds to thrive.
One such example is the US Small Business Administration (SBA). SBA does not directly provide funds to businesses; instead, they refer businesses to partner financial organizations and lenders.
You can only imagine the endless possibilities of Merchant Cash Advance and its applications across different sectors worldwide.
How to Invest –
Investors are always looking to invest – the key goal being guaranteed and profitable returns on their investment; that being said, the Merchant Cash Advance industry could be a great place to invest.
We’ve already discussed why it is a great investment opportunity, so we’re just going to jump into the How.
- Buy shares of Fintech companies that provide Merchant Cash Advances to Small and Medium Entrepreneurs.
- Become a registered investor with certain MCA companies who invest your money in businesses and return it along with profits after a designated period.
- Become an accredited MCA lender/Funding company. (You can become an accredited loan provider with Government or Non-Government business associations).
There is an advantage in being affiliated with business associations/governing bodies - both for investors and the beneficiaries.
These organizations act as a regulatory body and ensure the credibility of both businesses and lenders. They also help connect lenders and businesses.
Now let us see examples of popular and successful businesses that have made a fortune in the Merchant Cash Advance industry.
Emerging Lenders Invest in Merchant Cash Advance Industry
Come 2021, the dimensions of investing have changed rapidly. The pandemic was a crucial factor in determining the fates of many businesses.
As businesses struggled to stay open and operate, a good number of companies required additional funding.
MCA brokers sought essential business leads for funding businesses during those dire times.
Here’s the name of a few bigshots who have considered investing in the Merchant Cash Advance industry.
PayPal, a pioneer in the digital payment realm, has over 360 million users worldwide.
Being a member of PayPal Business or Premier qualifies you for PayPal Working Capital - a business loan against your future PayPal sales.
Consequently, Paypal Working Capital has provided more than $10 billion in funds to more than 2,25,000 million small businesses worldwide through more than 650,000 loans by the year 2019!
The lending segment provides their beneficiaries with up to $97,000 for their first advance, up to $3,00,000 for future advances.
Amazon is an American Multinational tech company that started off as an E-commerce platform in 1994 and has expanded greatly over the years; now considered as one of the highest valued companies in the world.
Moreover, Amazon introduced Amazon Lending in 2011 when it started providing Capital advances up to $750,000 US to Amazon merchants.
The payment gateway was founded in 2005 in New York City, providing online money transfer and digital payment services to businesses and individuals worldwide.
Payoneer Capital Advance was introduced in 2019 to provide Working Capital up to $750,000 to Merchants operating on platforms like Amazon and Walmart.
Shopify, the Canadian eCommerce company, has its own lending wing, known as Shopify Capital.
They offer MCA ranging from $200 to 1 million USD for American businesses and $200 - $.5 million CDN for Canadian businesses.
Square is a fintech company that has made a reputation among the young generation. It started as a payment system - a square-shaped card reader that allowed users to pay digitally in stores.
Square introduced Square Capital services - its lending wing in 2014.
Registered Square Sellers can access MCA ranging from $300-$2,50,000 with the Square Capital services.
Market trends infer that there’s massive potential in investing in Merchant Cash Advance and that’s evident in the bandwagon of investors headed that way.
We hope this article was insightful in educating you about the investment opportunities in the industry. Here’s more insight into the MCA industry and its future.