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A History of Merchant Cash Advances

April 2, 2020

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A merchant cash advance, or MCA, is offered by a short-term funder and is a solution for companies that are looking for financing for any number of reasons, including but not limited to, inventory, working capital, equipment for upcoming jobs, etc., and for companies that do not qualify for bank lending and/or need quick capital.

A merchant cash advance is not a loan. It is purchased with future revenue, so business owners are purchasing money at a discount. It is classified as a business transaction and thus is not subject to the same scrutiny or usury laws as traditional loans.

Repayment of this product occurs as a portion of future sales, which is determined upon the calculated risk and future sales projections, or through traditional remittance methods based on money factor rates. A factor rate is the cost of capital rather than an interest rate. Factor Rates do not compound and is the cost of capital for the borrower.

Another aspect to note is that there are no regulations with how business owners spend their money because this exchange is executed in a business transaction manner.

The exchange is a simple promise of future sales performance. There is an underwriting process that every Funder takes prior to funding a business owner.

So who invented this ingenious financial tool, empowering businesses to access short term capital and also benefit people or institutions willing to fund the opportunity?

Drumroll please…
MCA’s were invented by business owners, not bankers.

This makes sense because the need for alternative funding is VERY HIGH.

Here is the story, according to NerdWallet.

“In the late 1990s, Barbara Johnson was running four Gymboree Playgroup & Music franchises. Unable to get working capital to fund a summer marketing campaign, she wondered whether she could borrow against future credit card sales from parents bringing their kids back for fall classes.”

Barbara and her husband went on to found Advance Me, A merchant cash advance funding company, in 1998 and went on to patent the technology allowing the split of credit card sales.

MCA’s Past Responsibility to Drive Business

Before the 2008 Recession, MCA funders prided themselves on their responsibility of helping businesses grow.

Instead of profiting on the advance itself, these companies profited on POS — hardware and software used to process payment.

The industry’s mission objective was to develop a portfolio of the businesses they helped grow.

The industry has changed cyclically over time as repayment terms have expanded and, consequently, been restricted.

Early Beginnings

There is a misconception bred from misinformation.

The merchant cash advance industry was not created out of necessity during the 2008 financial crisis. In fact, the MCA industry has been around since the 1990s and gained popularity in 2005.

Prior to 2007, MCA financial advisors had contributed to a pulse that stated the industry’s days were soon coming to an end.

That intuition was far from correct.

The MCA industry flourished.

During the 2008 recession, financial institutions constricted their underwriting parameters; this caused many loan and credit line rejections. The companies that were rejected turned to the MCA industry.

From 2003 to 2007, MCA advisors communicated via the forums in a blog called the Green Sheet. This medium successfully documented the early nature of this industry. During this time the supposed massive amounts of innovation and growth were minimal compared to what the industry is doing now. There were not many new companies or people entering the industry, which made growth difficult. During the Mid-2000s, there were few big players in the market.

After 2010, the industry grew and millions of dollars came rushing in. Large companies greatly increased their capital to lend to businesses through large-scale financing with banks like Wells Fargo and TAB bank.

MCA Technicalities

The merchant cash advance industry originally had a payback method based upon the predetermined percentage of future sales.

The amount owed back directly depended on how many sales were made. Today, MCAs shifted towards daily or weekly payback amounts. These amounts are based off of a business’ projected future income.

This more clearly determined the annual percentage rate on an advance

Technology and Data as a Segue for MCAs

Today, MCAs generate 5 to 10 billion dollars in advances each year in the U.S. alone, with estimates as high as twice that. As this industry matures and the tech world advances, more tech companies are utilizing merchant cash advances.

E-Commerce is a tech industry where the percentage of sales can quickly and automatically repay MCAs.

We get “advance” offers from large credit card companies now, all the time.

Massive tech players are jumping into the funding side of cash advances and alternative lending, rewriting the industry entirely. Businesses like Airbnb, AirAdvance, Paypal, Square, and Shopify exchanged millions of dollars in cash advances.

Are there any ways that Investors can participate in Merchant Cash Advances?


Innovation has occurred quickly in the MCA space.

Our crowdfunding platform, Supervest, continues to surprise accredited investors.

You are probably thinking: “why am I just hearing about this now?”

Here’s why… with more stringent financial regulations on funding, businesses don’t have the same access to capital that they used to.

The industry is ballooning… and regular MCA funding companies cannot keep up with the demand.

Then came the birth of Supervest.

These factors allowed Supervest to create a multi-faceted community of MCA composed of:

  • Funding companies that each have hundreds of businesses that need funding
  • And accredited investors able to supply the needed capital.

Investors can access the upside of an MCA loan and have their capital spread across multiple different funding companies, and thousands of different businesses.

This diversifies risk.

There are no catches. No extra fees.

And your investment is accessible 24/7. The best part is that investors can start receiving money back on their initial investment within a week of signing up, with everyday remittances going forward.

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