Default Rate
Default rate is the percentage of MCA advances that fail to fully repay according to original terms — typically calculated as defaulted dollar volume divided by funded dollar volume — a fundamental portfolio risk metric for MCA funders.
Why This Matters
Default rates vary significantly by funder underwriting tightness, merchant profile, market segment, and economic conditions. Industry typical: 8-15% default rate on standard MCA portfolios, 15-25% on higher-risk specialty programs, 5-10% on premium-quality portfolios with conservative underwriting. Defaults are partially offset by gross yield (factor rate × volume), enabling positive net portfolio economics even with material default rates. Default rate analysis must consider full lifecycle (some defaults occur late in advance terms after substantial repayment) and recovery rates (collections typically recover 30-60% of defaulted balance through workout, judgment, and personal guarantee enforcement).
Frequently Asked Questions
Frequently Asked Questions
What MCA default rate is typical?
8-15% default rate on standard MCA portfolios, with significant variance by funder underwriting tightness. Higher-risk specialty programs may run 15-25% defaults; conservative programs 5-10%. Default rate alone doesn't determine portfolio profitability — gross yield and recovery rates also matter significantly.
How do MCA funders manage default risk?
Through underwriting tightness (selecting lower-default-probability merchants), pricing calibration (factor rates incorporate expected default cost), portfolio diversification (across industries, geographies, deal sizes), and active collections infrastructure (maximizing recovery on defaulted accounts). Each lever balances risk and origination volume.