One group in particular that’s optimistic about the Trump administration is the merchant cash advance industry.

President-elect Trump has vowed to loosen the regulatory environment for the financial sector, as well as to implement more practices that support small businesses, which account for the lion’s share of cash advance users.

“The industry’s take on it is that it’s phenomenal,” says Isaac Stern, CEO of Yellowstone Capital and board president of the Commercial Finance Coalition, a trade association that consists largely of alternative lenders. “Everyone knows Trump is pro business, so it looks like it’s going to be a more lax environment for us.”

IMAGE: Bloomberg News

Merchant cash advances have been considered a controversial financing tool because businesses are typically required to repay them at a high premium. But they can be lucrative for cash advance companies as well as the ISOs that rely on advances as a value-added service.

The cash advance industry has gained more mainstream acceptance and experienced substantial growth in recent years, fueled in part by investments from hedge funds and venture capitalists as it has become more difficult for small businesses to obtain traditional bank loans.

Dan Gans, executive director of the Commercial Finance Coalition, says his group’s membership deploys about $1 billion in capital each year.

“You could argue that might sustain 100,000 jobs,” he says. “Imagine if we had a regulatory environment that fostered this kind of activity.”

Federal regulations under Dodd-Frank have clamped down mostly on traditional banks, but cash advance companies have feared that they could end up in the crosshairs too. The industry has drawn comparisons to the Wild West in its early days for being largely unregulated; experts point out that it’s been self-regulation, and not federal oversight, that’s helped the cash advance market shed that Wild West reputation in recent years.

“We focus on the regulatory environment every day. The fact that Trump won doesn’t really change our conversations,” says Andrew Reiser, CEO of Strategic Funding Source.

Stern adds that it’s in the cash advance companies’ best interest to regulate themselves because not doing so can be costly. “No one wants to have to hire 20 compliance people to make sure you’re following every rule,” he says.

Hellen McQuain, senior vice president of corporate relations for Strategic Funding Source, doesn’t see a Trump presidency having much bearing on the industry in the short term because cash advance isn’t affected by prime lending.

“I don’t think it’s going to make a huge impact with us, at least not in the next year or two,” she says. Rather, there are other forces in play that will have more influence on how merchant cash advance companies evolve in the next few years.

“I believe we have our own issues in the industry, which is making sure our default rate stays down, that we have good algorithms in place to study our data, and making sure we’re not overextending to a merchant,” McQuain says.

CAN Capital, for example, says its own wounds are self-inflicted. The merchant cash advance provider said in late November that its CEO and two other executives are taking a leave of absence and it is not actively seeking new customers. The company said its problems stem from its method of collecting payments; however, experts say CAN Capital's situation could create fallout for other companies.

James Pendergast, chief operating officer for US Working Capital, says the greatest threat to the industry right now is not who’s in the White House, but rather funding companies picking each other off by stealing one another’s merchants. But whatever the issues, the merchant cash advance market will persist because "there’s always going to be a need for it,” he says.

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