Exposure Limit
Exposure limits cap MCA funder concentration in single merchants, industries, geographies, or broker channels — the primary risk management discipline preventing catastrophic loss from single-segment failures.
Why This Matters
Exposure limit framework: established at funder policy level, monitored daily through portfolio analytics, enforced through underwriting decline rules. Common limits: maximum single-merchant exposure (typically $250K-$1M depending on funder size), maximum industry concentration (10-20%), maximum geographic concentration (15-20%), maximum broker channel concentration (10-15%). Capital providers (warehouse facilities, securitization investors) impose external concentration covenants reinforcing internal limits. Limit breach triggers immediate underwriting hold for the affected dimension until concentration normalizes.
Frequently Asked Questions
Frequently Asked Questions
What happens when an exposure limit is reached?
Underwriting automatically declines new applications in the constrained dimension until existing exposure runs off through normal repayment. Funders may push specific brokers to other funders during constraint periods.
How are exposure limits set?
Combination of capital provider covenant requirements, internal risk appetite, historical loss analysis showing concentration risk, and competitive market analysis. Limits adjust over time as portfolio matures and risk experience develops.