LendLedger Opportunities: Merchant Cash Advance
LendLedger is a network using blockchain to make data-driven loans to millions of underserved small business borrowers worldwide. With a goal of powering $1 trillion worth of capital in the next 10 years LendLedger is launching pilots in the working capital, supply chain financing, invoice factoring, and merchant cash advance (MCA) space.
There are 28.7 million small businesses in America. Only 16% apply for credit with banks and get the full amount they request. Either because they don’t receive the full amount required, are discouraged by the process, or because they quite simply don’t meet the bar, vast swathes of small business owners are turning to alternative lending sources. One rapidly growing source of income for small business borrowers is MCA funding.
The problems with MCA
Whilst MCA offers small business borrowers the opportunity for fast capital without the need for collateral, or a high credit score, the industry has come under scrutiny for questionable business practices and a lack of transparency.
MCA funds are not legally loans. Rather, funders are paying a business for a proportion of future sales. A business repays that amount plus a factor rate (comparable to an interest rate for a normal loan). As MCA financing does not use traditional collateral, MCA funders commonly make borrowers sign what is known as a confession of judgement. This document could even allow the funder to seize the borrower’s business and personal bank accounts if the funds are not repaid and can come at a terrible price, for not only borrowers, but other funders who have lent out money and are now unable to be repaid.
LendLedger X MCA
After speaking to small businesses and MCA funders across the US, the LendLedger team has conceptualized a blockchain-based marketplace for MCA funders, with the aim of reducing costs and negative consequences for funders and borrowers.
The LendLedger team is preparing a pilot that will feature a few high quality MCA funders, who will use LendLedger to source, review, and respond to broker-submitted borrower applications.
Perceived benefits of the marketplace
For MCA funders the LendLedger marketplace presents an opportunity to source more leads due to the high volume of brokers on the platform. It also offers the opportunity to improve quality of deals sourced as the market incentivizes brokers to compete on price and quality.
For borrowers the platform offers the opportunity to source a number of loan offers with one simple application. It will also allow those seeking funds to establish a reputation as good borrowers, as well as ensuring funders on the platform are of the highest quality.
