B2B Payments

PIRS Capital Talks Merchant Cash Advance Evolution

Small businesses’ use of alternative finance platforms is slowly on the rise. While data from the Federal Reserve shows small and large banks still tower over online lending platforms when it comes to small businesses that seek financing, the Fed has recorded a steady climb in the percentage of entrepreneurs who turn to an alternative lender first.

Merchant cash advances (MCAs), though, don’t top the list. Just 7 percent of small businesses that sought funding last year went after a merchant cash advance, a loan product with a reputation for high interest rates and a quick source of cash for firms teetering on the brink of financial ruin.

Today, however, Andrew Mallinger, chief operating officer of merchant cash advance platform PIRS Capital, said that entrepreneurs are looking at the MCA in a new light.

“People were wary of what this was, but in the last five years, customers are talking to us about using [financing] for expansion and growth, hiring, inventory – rather than, ‘I need $50,000 in my account by Friday or I’ll go out of business,’” Mallinger told PYMNTS in a recent interview. “It’s cool for us, because we have a better choice of who we get to work with in terms of customers. It’s a more sophisticated merchant, not one that’s in a panic or frenzy, but one that has an opportunity and might just need a bit more money to bump them over the edge.”

Now, there is a new challenge emerging for the MCA market – and for alternative lenders of all kinds.

Alternative lenders emerged as companies more agile than traditional banks at digital innovation, offering self-service portals and online application processes. But small businesses value the relationship they have with their banks – and, according to Mallinger, alternative lenders have to deliver on that need for advisory services.

“Not every month is the same for these small businesses, and the closer relationship we have with them, the more they trust us,” he said.

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Latest Insights: 

The Which Apps Do They Want Study analyzes survey data collected from 1,045 American consumers to learn how they use merchant apps to enhance in-store shopping experiences, and their interest in downloading more in the future. Our research covered consumers’ usage of in-app features like loyalty and rewards offerings and in-store navigation, helping to assess how merchants can design apps to distinguish themselves from competitors.

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