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The Future of MCA

September 18, 2023

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The Ascendance of the Merchant Cash Advance Industry

Once on the fringes of the financing world, MCAs are now an established and respected investment option. And the industry continues to grow, offering solutions tailored for modern investors.

What is a Merchant Cash Advance?

Very simply, an MCA isn’t a loan, it’s an advance: a lump sum given to businesses in exchange for a future portion of their sales. This structure gives businesses (merchants) the flexibility they need and gives investors the potential to benefit from a low-correlation alternative asset.

If you want a deep dive into how an MCA works from start to finish, you can get that here.

A bar and a line graph both ascending. Future of MCA
Find out more about the growth of the MCA industry. Photo by Monstera Production.

The MCA Surge: By The Numbers

  • $17.6 Billion: The estimated value of the MCA market. This reflects a compounded annual growth rate (CAGR) of approximately 6.5% since 2016.
  • $26.3 Billion: The predicted value of the MCA market by 2029. Studies forecast a compound annual growth rate of 15.5%. .
  • 40%: Percentage of small to medium businesses that have considered alternative financing options, like MCAs, as traditional banking solutions become less attainable or viable.

Why the Rising Interest in MCA Investments?

  • Flexible Repayment: MCAs allow businesses to repay based on their daily sales. This flexibility makes MCAs a preferable choice for businesses with variable incomes, like seasonal businesses.
  • Speed & Accessibility: MCAs address the immediate financial needs of businesses much faster than traditional loans. MCAs can get approved within 24 hours, giving businesses vital operating capital when they need it most.
  • Growing E-commerce Sector: The e-commerce sector is noted for its inherent revenue fluctuations. The boom in the e-commerce industry over the last ten years has created a perfect niche for MCAs. As e-commerce grows, so does the demand for flexible financing solutions.

Both as a lifeline for businesses and a promising avenue for investors, MCAs have cemented their place in the modern financial playbook.

Digital image of a hand holding a magnifying glass inspecting a bar graph Future of MCA
The MCA sector continues to grow. Photo by Monstera Production.

Top Industry Trends Shaping the Future of MCA

The global market and financial ecosystem are influenced daily by technological innovation and changing business needs. Data on the macro-evolution of the economy herald several trends shaping the future of MCA. These include:

Technological Upgrades

  • Automated Processes: Advanced software solutions have automated some parts of the MCA application and approval process, making it quicker and more hassle-free for businesses to apply and hit the ground running.
  • Integration with POS Systems: Integration with Point-of-Sale (POS) systems makes seamless extraction of daily sales data easy. The in-built integration simplifies the repayment process for businesses and gives them less admin to think about.
  • AI and Predictive Analytics: AI technologies are paving the way for smarter decision-making in MCA provisioning, optimizing for both risk and reward on the investor side.

Innovations in Risk and Credit Assessment

Data-driven Decisions: The use of big data analytics allows for a more comprehensive evaluation of a business’s financial health, beyond traditional credit scores. More data means more rigorous vetting of eligibility for merchants and helps to manage risk for investors.

Tailored Approaches: New assessment models can take into account factors like online reviews, social media presence, and market sentiment. These tailored analytics give a more holistic view of a business’s creditworthiness and further help to manage risk from the investor side.

Wrapping up

There are some unique opportunities in the MCA landscape. You can have a look at our 12-month note here and our 24-month note here.

Want to chat with someone from our team of MCA experts or request a demo? You can do that here.

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