The Potential of MCAs Amidst a Looming Debt Ceiling Deadlock

May 15, 2023

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The Potential of Merchant Cash Advances Amidst a Looming Debt Ceiling Deadlock

Unprecedented US default looms

As the U.S. economy teeters on the brink of a potential default, talks between President Joe Biden and top legislators remain at a standstill. The crux of the issue lies in raising the $31.4tn U.S. debt ceiling, an urgent matter as the threat of an unprecedented default looms as soon as June 1st.

Despite Biden labeling the ongoing discussions as ‘productive’, the lack of tangible progress intensifies the worry around this historical and pressing issue.

A lighthouse lit against the night sky
Beacons of hope in the investment landscape do still exist. Photo by Allen Cai on Unsplash

Treasures are no longer so safe

In the past, some investors have compared the returns of Merchant Cash Advances (MCAs) on our platform to the relatively high rates offered by Treasury securities. There is sometimes a perception that, in exchange for a 5% lower return, it’s better to stick with the ‘risk-free’ investment backed by the full faith and credit of the U.S. government.

We understand this viewpoint. After all, Treasury securities have long been considered the gold standard of safe investments. But we now have to acknowledge that the economic landscape is shifting, and with it, the risk profile of previously ‘risk-free’ investments.

In recent years, the U.S. government has been grappling with significant fiscal challenges, including the soaring national debt, which stood at $28.43 trillion at the end of 2021, and has now skyrocketed to $31.4tn.

This raises questions about the long-term sustainability of its debt obligations, potentially impacting the safety of Treasury securities.

A post-it note with ‘pay debt’ written on in red ink
US debt now stands at a total of $31.4tn. Photo by Towfiqu barbhuiya on Unsplash

Meanwhile, MCAs represent a potential opportunity to diversify your investment portfolio and tap into the growth of the small business sector, a critical driver of the U.S. economy. According to the U.S. Small Business Administration, small businesses account for 44% of U.S. economic activity.

At Supervest, our MCAs offer a mixture of 12-month short-term, 24-month mid-term, and self-directed long-term investments that deliver daily returns, providing investors with regular cash flow and the flexibility to reinvest quickly, amplifying potential returns. They are also backed by the receivables of the borrowing business, offering a tangible asset that can be collected in case of default.

While all investments carry risk, diversification is a proven strategy that contributes to mitigating the overall downturn. In this light, MCAs can serve as a valuable addition to a well-balanced investment portfolio, potentially offering higher returns than Treasuries without significantly increasing overall portfolio risk.

As always, we advise investors to thoroughly evaluate their risk tolerance and investment goals before making any investment decisions. We remain committed to providing the information you need to make informed choices about your investment portfolio.

You can get started with MCA investing here.

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