Monday, March 16, 2009

SBA Loan Defaults Increase - A Lesson To Be Learned For Merchant Cash Advance Providers?

While a merchant cash advance is not a loan product, the SBA does cater to a similar audience as the MCA industry. Here is an interesting article that indicates SBA loan defaults have JUMPED from 2.4% in 2004, to 8.4% in 2007 to 12% in 2008 (11.8% to be exact).

The scary part is a direct funder of an alternative financing product such as a merchant cash advance product can not make money at 12%, how can the provider of a low margin product such as an SBA loan survive? I guess they can't.......

One key difference, when a business defaults on a SBA loan product, the business owner personally guarantees the loan in most cases and leaves their personal assets exposed. With a traditional merchant cash advance product (Factoring future credit card receivables), the merchant cash advance provider writes off the future receivables purchased from a business that legitimately goes out of business.