Small Business Administration Learns From the Merchant Cash Advance Industry

“Up to $250,000 for your small business fast!” No, it’s not another Merchant Cash Advance (MCA) advertisement, it’s the new slogan being used by the Small Business Administration (SBA). According to a CNN Article, the SBA is pushing an initiative to speed up the funding process. The article states: “The idea is to get loans under $250,000 into the hands of small businesses efficiently: Applications are only 2 pages long and can be approved in anywhere from “minutes” to 10 days, according to the SBA. Greater access to credit should help spur firms to grow and hire, giving the economy a boost.”

The language is so close to what’s already written on every MCA firm’s home page and mission statement, that we wouldn’t be surprised if a few copyright lawsuits get thrown around. Hey AdvanceMe, time to whip out another patent lawsuit and sue the SBA!

“Many entrepreneurs and small business owners across the country have enormous potential to drive economic growth and create good-paying jobs in their local communities, but too often they face barriers in fulfilling that potential,” said Catherine Hughes, chairperson of the SBA’s new Advisory Council on Underserved Communities, in a written statement.

Leave it to the government to be behind the curve. But before we go ahead and add U.S. Government to our list of funders, it’s important to reflect on what it means to be behind the curve in this business.

“The SBA’s new Small Loan Advantage incentive cuts the paperwork burden. Larger banks that are already so-called “preferred” lenders can make loans through its flagship 7(a) lending program up to $250,000, and get them approved quickly by submitting a single-page credit memo, according to Jonathan Swain, assistant administrator for the SBA. Loans submitted electronically “will be approved in minutes,” according to the SBA. Other applications will be approved within one business day.”

Cutting the paperwork… Approval in minutes… While the actual applications are handled by participating banks, it sounds like the SBA should be taking another page from the MCA industry, their underwriting process. With government backed guarantees ranging up to 85%, one can’t help but think that a human should be approving the deals. If it’s any further indication that they are heading into dangerous territory here, the infamous SBA Asset Recovery Capital (ARC) Loan had a predicted borrower rate of default of 56%. Whether or not those projections have materialized into reality are unknown. It’s no surprise then that the SBA seems to be mum on the topic.

With approval in seconds, MCA resellers might find themselves in the company of new competition when calling leads. I guess we’ll see where this all goes.