The funding metrics of a MCA

**blindbid** · 08-08-2013, 03:55 PM

I'm just trying to get a picture of all the players and their percentages within the industry.
If a merchant takes a 100K advance at 1.38 over 12 months, he will pay back 38K to the additional 100k for a total of 138K within the 2 months.

The bank's buy rate 20% of 100K or 20K
Funding company takes 7K.
Broker takes 8% of the payback or 11K

Does that look right?
Most MCA's are 6 to 7 months.
In a 6 month deal,
The Funding company double their revenue without paying any additional money to the bank.

**MCNetwork** · 08-08-2013, 04:14 PM

That's a very simplistic view. You have to factor in the funder's overhead and defaults into the metrics as well. Plus the bank's 20% buy rate is too high. A funder won't be competitive or profitable with a high cost of funds.

**Chambo** · 08-09-2013, 10:11 AM

There are a couple more factors to add in there. In concept this is correct, but the numbers are off.

MCA is right....20% for the money is astronomical. however, I have heard one of our MCA brethren is paying around 19% on the money due to their previous years' default rates.

Remember, that is 19% a year mind you, not per deal (don't believe the hype!), but rates go up as the defaults increase (much like a credit card's fees).

**MCNetwork** · 08-09-2013, 10:45 AM

If you can keep the cost of funds under 13% then you have a fighting chance. Otherwise if you only make 7K-14K for every 100K loaned out over 12 months, you'll be out of business within a year. The risk/reward ratio is just terrible.

**blindbid** · 08-09-2013, 04:13 PM

What are companies like Yellowstone, Rapid and Advance me paying for funds?

**Chambo** · 08-09-2013, 04:16 PM

Originally Posted by blindbid

What are companies like Yellowstone, Rapid and Advance me paying for funds?

Asking funds to admit their cost of capital? On a Public post? WOW,.....Good Luck with THAT

**MCNetwork** · 08-09-2013, 04:33 PM

I heard through the grapevine that some hedge funds are looking for about 11% on their capital from the larger funders.

**Chambo** · 08-09-2013, 06:01 PM

You want to make these MCA's really profitable? Have the CEO's start putting up their OWN capital. That way, the cost is zero (unless they charge their own company interest...not unheard of)

**MCAVeteran** · 08-21-2013, 12:14 PM

you would need to find out what Wells Fargo Capital Finance is lending their money at to some of the larger names in this space- BFS, AMI, etc..

**JayBallentine** · 08-21-2013, 08:36 PM

Originally Posted by blindbid

What are companies like Yellowstone, Rapid and Advance me paying for funds?

Michael O'Hare!

Didn't your "MBA" training advise against asking such a question in such a venue!!?

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