Thriving Amid Turmoil: How Alternative Investments Shine in Uncertain Times
SVP has collapsed. So have major US lenders Signature and Silvergate. Credit Suisse has reported all-time low share values. Economists warn that this could be the beginning of another collapse akin to the Lehman Brothers fallout and the following global recession.
It’s an uncertain and volatile time for sure. But, it is also a time of opportunity. If you are lucky enough to be in a position where your basic needs are met, then a period of crisis like this can be a valuable time to consider how you might adjust your investment strategy to make the most of the market conditions.
Warren Buffet’s consoling wisdom
We like to remember the words of Berkshire Hathaway’s own Warren Buffet who, in his 1986 Chairman’s letter, issued some iconic and enduring advice. Buffet reminds us that to excel as investors we should get “fearful when others are greedy, and greedy when others are fearful.”
We are not financial advisors and don’t intend to give you any advice. You can consider for yourself what you think of Buffet’s achievements and consistency, and evaluate whether or not his advice might be valuable to you.
What this means for you
In this blog, we are going to cover what the recent banking turmoil means for alternative asset investing, with a particular focus on our specialism – Merchant Cash Advances.
- What we are seeing today is broadly similar to the 2007-2009 landscape
- During this time, banks curtailed lending which threatened to put a lot of companies out of business
- Many of those high-quality businesses consequently turned to Merchant Cash Advances
- The MCA space blossomed and yielded competitive results for investors
Why recessions mean growth in the MCA market
The 2008-2009 financial crisis is the closest model we have to the turmoil happening right now in finance. During that time, a lot of banks were made to pull back quickly from any type of lending because of their serious balance sheet, liquidity, and regulatory concerns.
That pullback effectively shut off the lifeblood of many small and medium-sized businesses to secure working capital to run their operations. This, in turn, made the effects of the recession more brutal as more companies were forced to go out of business due to a lack of working capital. Not good.
As a result of banks pulling back on lending, a great number of merchants turned to one of the very few funding sources available: Merchant Cash Advances.
Crucially, during 2008-2009, many of the merchants looking for MCAs were excellent businesses with fantastic credit scores and a robust history of profitability.
It was only because of the banking systems issues, not a result of any fault of their own, that these high-quality businesses were unable to secure capital. A very similar situation appears to be unfolding today.
Banks will likely be extremely cautious in the coming months because regulators are likely to force lending institutions to meet stricter capital requirements and curtail riskier loans.
What this means for MCAs
What turmoil means for MCA Funders and those supplying capital or investing in MCA advances (like our users) is an influx of higher quality merchants applying for and securing capital at a very attractive return for those investing in or supplying that capital.
The 2008-2009 window offered one of the most opportune times to be investing in the MCA space as higher quality merchants shut off from banks came into the space. Investors were able to demand high returns for their capital in such an environment with a quality of merchant much higher than might be typical in the MCA space.
If you are interested in getting started with MCA investing, you can do that here.