Weathering the Storm: Economic Uncertainty and Long-term Wealth Building
History has shown that during times of banking turmoil, like the Savings and Loan crisis in the 1980s and the 2008 financial crisis, investors who diversify their assets and who have a strategic long-term plan are more likely to weather the storm.
How MCAs feature in a long-term game plan
In the past, investors who maintained a long-term approach and kept a keen eye on market trends have fared better during tumultuous periods of economic uncertainty.
For instance, during the 2008 financial crisis, investors who maintained a diversified investment strategy and held onto their positions were able to recover and even profit once the markets rebounded.
It is crucial for investors to avoid making panic-driven decisions and instead focus on long-term goals and strategies.
Of course, one investment option that can provide diversification and help investors navigate this economic moment is merchant cash advances (MCAs). MCAs are a form of alternative financing where businesses receive a lump sum payment in exchange for a percentage of their future credit card sales, and they are what we specialize in.
MCAs offer several benefits to investors, particularly during times of economic uncertainty
Firstly, MCAs can provide investors with a steady stream of income. Since businesses are required to pay a portion of their daily credit card sales, investors can expect regular cash flow. And demand for MCAs is growing.
According to a study by deBanked, the MCA industry grew by 23% in just one year 2016 and 2017, with total funding amounting to $15 billion in 2017 alone. More recent figures calculated by Bryant Park Capital, a Manhattan-based, boutique investment bank from 2019 suggest that the MCA industry was growing by 20% year-on-year.
This rapid growth demonstrates the increasing demand for alternative financing options and suggests potential for continued expansion.
Diversification: risk mitigation
Secondly, MCAs can offer investors a degree of risk mitigation. By investing in a diverse range of businesses across various industries and geographies, investors can reduce their exposure to localized economic downturns or sector-specific risks.
For example, a portfolio comprising MCAs in the retail, hospitality, and healthcare sectors would be less vulnerable to industry-specific downturns than a portfolio solely focused on one sector.
Additionally, MCAs can provide investors with exposure to the small business sector, which is traditionally underserved by traditional banks. A report by the Federal Reserve Bank of Cleveland found that in 2016, only 45% of small business loan applications were approved by large banks.
This gap will be widening even further now as banks tighten up their lending criteria and reduce the amount of loans they are willing to make. In turn, this creates an opportunity for investors to support small businesses while potentially earning competitive returns.
Due diligence is crucial
As always, it is essential for you to conduct thorough due diligence when investing in MCAs. This includes investing with a company that carefully evaluates the financial health of the businesses they are investing in, as well as the terms of the MCA agreements. You can have a look at our due diligence procedures here.
The key takeaway here is that the multiple collapse of US banks over the last few months doesn’t have to spell disaster for you.
It is possible to thrive and build wealth even during times of uncertainty. Smart investors have done it before, and you can do it this time.
If you want to get started with MCA investing, you can do that here.