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Avoiding MCA Pitfalls

October 17, 2022

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The Number One Piece of Advice for Avoiding MCA Pitfalls

For those of you who are short on time, here is the core message.

Our number one piece of advice for avoiding MCA pitfalls:

Utilize investment experts who comprehend the processes and are involved in it daily.

If you are ready to start investing in MCA’s today, you can join us here.

For those of you who want more of a deep-dive, read on.

Benefits of Merchant cash advance investment

MCA investment has several appealing features, including:

  1. High returns – varying from high single digits to mid double digits.
  2. Short duration – measured in months rather than years. You can even start reaping the benefits of your investment on the first day.
  3. Chance to engage in direct financing as a creditor or co-lender to lending institutions and/or as a loan originator.
  4. Growth rates in the MCA industry over the next six years are projected to be huge. This one is really worth considering especially in an economic context of high inflation and bottoming stock values.

 Key MCA takeaway:

The merchant cash advance industry is forecast to develop dramatically, reaching up to USD $1,140 billion by 2028 at a CAGR of 15.5%.

This growth is fueling demand for reliable and secure merchant cash advance services, which in turn presents a unique opportunity for investors.

The risks to you as an investor

Two people working on legal documents at a table.
Due diligence is vitally important for securing robust MCA deals. Photo by Gabrielle Henderson on Unsplash.

An investors ability to avoid the hazards of MCA investments includes their ability to answer the following questions:

  1. What are the contract conditions, and how do they safeguard the investor?
  2. How up to date is the technology? Is the software for payment processing, data reporting, and administration up to date and linked with the contract?
  3. How comprehensive is the merchant vetting process? Who is in charge of underwriting?
  4. What if the seller fails to pay?
  5. What is the MCA provider’s track record?

Investing in this area requires a high level of skill

Legal knowledge is essential to guarantee that contracts are well-drafted, so a hands-on approach is important when assessing the merchant and establishing underwriting requirements.

Any indication of contract default needs to trigger a robust and effective flow of support for the merchant, such as a contract extension.

It is important to monitor and track every aspect of the deal after the parties have signed the contract and commenced implementing the provisions.

Due diligence involves the investor, the merchant, the MCA provider, bankers, lawyers, and sometimes many third parties.

Because of this, it is vital to ensure the correct mix of commercial, legal, and financial expertise to assure successful execution of these responsibilities.

It isn’t easy to assemble a team with such high level competencies. This leads us to the most valuable advice we can offer.

Our number one piece of advice for avoiding MCA pitfalls is to utilize investment experts who comprehend the processes and are involved daily.

 As an example, just a few of the core activities that we undertake on the investors behalf include:

  1. Certify that the MCA enterprise is in good standing, financially solvent, and complying with all applicable laws and regulations.
  2. Examine litigation, customer complaints, and regulatory activities.
  3. Identify the appropriate insurance coverage, such as E&O, general liability, and so on.
  4. Determine if the loan originator can provide enough monitoring and tracking of all company processes, policies, and procedures.
  5. Supervise underwriting guidelines to assess the following risks
    • Identity of borrower
    • Capacity of borrower to repay
    • Intention of borrower to payback

What we do

bar and line graph data is displayed on a laptop screen.
It is vital to collaborate with investment experts who understand MCAs. Photo by Campaign Creators on Unsplash

The list extends far and beyond what we have included here.

MCA investing is complicated, which is why we have specialized in assembling world-class teams of experts to handle the process on your behalf.

Our platform offers a full-suite MCA investment service which means our investors shoulder none of the burden but still reap the rewards.

If you are ready to get started, you can do so here.

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