The Direct Funder Model is Sooo 2009

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Originally posted on Dec. 1, 2010

We touched on this in a previous post and think it’s important to expand on it. The Merchant Cash Advance industry has evolved over the last several years. The clear line between Broker and Funder is becoming incredibly blurred.

Many Direct Funding companies are now offering brokers the opportunity to contribute their own funds towards an advance and share in the profits(And the risk!). On the same token, many big name brokers seem to have filed a handful of UCCs as a secured party, an indication that they have funded accounts all by themselves.

Some industry vets have taken things to another level and are calling on multiple parties to share in a single advance. For example: A broker contacts several other brokers/funders and requests if they want to all chip in. One firm usually takes the lead and services the account to reap a management fee. This collaborative group financing acts like a mini hedge fund but we believe this signals an evolutionary move towards the Peer 2 Peer(P2P) Lending model. In essence a P2B model that looks like this:

This is an an altered picture of the P2P Lending Site.

Prosper boasts of having funded $210,000,000 since their inception. The Merchant Cash Advance industry has put out more than that in just the previous 6 months. So the concept is similar and it fits the mold. Merchants submit documents and an application to a P2B Network. The Network posts the business profile, processing history, personal credit score, reference information, and publicize it on the site. Anyone can then peruse businesses and choose which to contribute funds towards. Once the total advance amount that the P2B Network recommends has been raised, the P2B Network converts the processing, transfers funds to the merchant, and maintains the account for a fee.

While we don’t anticipate the entire industry to convert to this model, nor do we predict if it will actually work,  this will inevitably become a segment of the market. The Merchant Cash Advance industry received much criticism back in 2007 and 2008 but the tone has changed dramatically. The phrase “banks aren’t lending” is so worn out that people should be fined for saying it. Self regulating industry practices, the recent mass exodus of devilish sales brokerages, and the banking problem, have not only brought the Merchant Cash Advance industry legitimacy but also made it one of the preferred and most credible funding options available to small business.

A P2B network could do all of the underwriting, complete with a final say on approvals or they could present a business as is and allow everyone in America to be their own underwriter and make the determination themselves. How tempting would be it to invest $100 to a business in your community and buy a percentage of their future credit card sales? We like the concept and the industry is halfway there. Who’s going to start this first?

– An Opinion by the Merchant Cash Advance Resource



Last modified: October 21, 2020
Sean Murray

Category: merchant cash advance, MPR Authored

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