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.

1 comment:

Anonymous said...

I've read that article, and it helps explain why your typical commercial banks are so resistant to lend. Not only are they syphoning off toxic assets, but now they have to contend with a higher default rate among supposed top tier merchants!