The competition

Salomon lists several pressures on the industry. Merchant cash advances have become ubiquitous among small businesses, he writes, and supply-chain finance programs run by large buyers reduce suppliers' need to factor invoices. Fintech platforms are building credit into B2B marketplaces, and automation and AI cut the need for manual invoice verification.

He traces the shift to three developments:

• Banks widened small business credit after the 2008 financial crisis, including through SBA programs, so more companies could qualify for bank lines instead of factoring.
• Online lenders closed the speed gap. He names OnDeck, Rapid and Forward Financing, along with roughly 5,000 MCA brokers feeding the main MCA platforms. Many small businesses picked MCAs because they required less documentation, and he writes that MCAs offer "simplicity and speed, even if at a very high cost."
• Some factors, he says, have seen "debtor quality" erode because of early-pay supply-chain finance lenders such as C2FO and SAP Taulia. He gives Goodman Capital, led by Skylar Lane, as an example.

Regulatory pressure

Salomon also points to state law. California, where he is based, along with New York, Utah, Virginia, Connecticut and Florida, has adopted commercial finance disclosure laws that require APR-style transparency for factoring and MCAs. The changes have improved transparency and professionalism in places, he says, but they have also pushed some lenders out of the market.

The full article is on the IFA's magazine site.

Source reporting: deBanked.