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05-15-2014, 12:59 PM #1
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MCA Bubble
Do any funders fear that there is too much capital flowing into the industry right now? How will this impact the economics of MCA deals going forward?
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05-15-2014, 01:04 PM #2
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05-16-2014, 10:27 AM #3
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I don't think the industry as a whole would burst like the mortgage bubble, but I believe each individual funder is vulnerable to his own bubble. Companies that constantly push to fund more deals each month and at the same time relax their underwriting guidelines and lower their rates to be competitive will find themselves in a precarious situation if defaults start to exceed a certain percentage. The much larger and well capitalized funding companies are in greater danger of bursting their bubbles than the smaller funders are.
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05-16-2014, 10:40 AM #4
Underwriting is much more sophisticated today than it was when we had a bubble burst in this industry. Granted the recession played a large role in the perfect storm but for those who were around 2008/2009 selling mcas loans they already know many companies burst and had significant losses. That was an era of over advancing , no bank statements being reviewed, no cap on perc of gross repay, etc. That model failed. The new uw models look at all that data and much more. The stacking def seems to be an issue obviously and the low rates to buy market or the higher perc of gross to continue to fund def have some risks involved down the road. There is also too many funders going after the same pool of merchants daily which is leading to looser policies.
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05-16-2014, 12:51 PM #5
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I agree with MCAvet. The industry is expanding through organic growth. The capital flowing in is mostly due to vast previously untapped markets being tapped. It's not a factor of throwing good money into bad decisions but throwing good money into new markets.
There is intense market share and rate competition. Margins are getting trimmed so that has to be managed. A new company trying to buy the market in this environment is ripe for implosion.
IMO- the industry is more succeptible to economic shocks than at any time in the past. WAMs have gone up and WACs have gone down. The extended duration and lower returns of portfolios makes it much harder to hedge if the economy takes a hit.
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05-16-2014, 01:24 PM #6
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05-20-2014, 09:26 AM #7
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I agree it seems like everyone and their mother has "cash to fund with" RIGHT NOW and there are only so many variations of this product and underwriting so it has become an ever- expanding game of "chicken" between funders in terms of who is willing to overlook the red flags that should kill a deal and fund anyways. This type of funding is what causes companies to come and go at such a rapid rate. Ive seen a lot of people storm in offering crazy offers and in 3 months they either aren't around or have completely changed their model. Regardless of how much Cash is put in the industry, if it isn't coming back to the funders than the burst is happening.