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Warning Signs of a Merchant Cash Advance Market Bubble

Paragon Financial Group, Inc. is seeing the warning signs of a merchant cash advance market bubble. Small business bank loans have dried up and are more difficult to obtain since the Great Recession of 2008. Merchant cash advance (MCA) lenders have stepped in to fill the demand and are entering the marketplace at a high rate. David Rubin, CEO of Capital Stack LLC, says a little over a year ago there were 50 MCA funders with $1.5 billion in funding and just a year later over 120 funders with 3 billion in volume. The market for these types of loans is approaching 5 billion within the next several years, according to The Green Sheet.

“With the limited funding options available for U.S. small business, there is an increased number of entrepreneurs using MCAs for more than just a short-term cash crunch. Very similar to payday loans for consumers, this type of loan does not solve long-term cash-flow solutions,” said Daniel Rodrigue, Paragon Financial Group Director of Sales. A big reason is a hefty price being paid. According to Marc Prosser of, entrepreneurs are paying similar interest rates from 60% by the time an MCA is paid off.

Small businesses can get trapped, relying on these loans. “It’s the only way that I’ve found of getting funds that I need,” said Tony Boulton, owner of a kitchen supply store. “The sooner I can get out of it, the better. But right now it’s the only option I have.” At the same time, lenders are not mitigating risk and are focusing on quantity vs. the quality of the borrower with practices such as stacking (the practice of obtaining multiple merchant cash advances from numerous companies at the same time), according to

“MCA’s high-risk financing has a much higher default rate than non-bank financing. A large number of defaults would make a negative impact on MCA’s availability. Investors will no longer see MCA’s as being viable,” said Rodrigue. “Companies that became reliant on these loans have the potential to default in mass. This type of pattern is very similar to what happened in the sub-prime mortgage industry bust.”

For more information on Paragon’s alternative small business funding programs to MCA’s, contact Daniel Rodrigue via email or call Daniel at 888-271-9347 ext 1.

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Warning Signs of a Merchant Cash Advance Market Bubble

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