Monday, March 17, 2008
Merchant Cash Advance Market Size - Part 2
There have been many debates as of late on what is the potential market size of the merchant cash advance industry. One item people have been debating is the saturation of the marketplace with the amount of new agents/resellers/ISOs and former mortgage brokers that are now reselling this product (There has been a decrease of new funding companies entering this space, especially those with any sizeable presence). I estimate the market size at a minimum is now $850 million annually in merchant cash advances that will be funded. Let's assume 60% of that number is first time deals which brings it down to $510 million annually, which breaks down to $42,500,000 month in new deals funded. (I actually think the number is probably closer to $50 mil a month). I like to look at it as the average funding size is around $22,000 industry wide, which amounts to a little under 2,300 merchants a month taking a merchant cash advance for the first time. That means on average there are 46 merchants per state per month taking a merchant cash advance. (I understand some states are larger / more populated than others). But, no matter what argument you want to make, I don't think we've hit the tip of the iceberg with this product as there is no way only 46 businesses per state per month need access to non-traditional working capital for their business. I believe that number can be increased at least 10 fold making this upwards of a ten billion dollar industry. The ten billion dollar question is how do you reach these merchants cost effectively?