Join The Gold Rush With Square, Inc. And On Deck Capital

Aug. 25, 2019 4:58 PM ETBlock, Inc. (SQ)IOUFF, JPM, MCA, ONDK, IOU:CA35 Comments
Harold Goldmeier profile picture
Harold Goldmeier


  • Two public companies dominate by revenue the non-bank small business financing space for the last six years. They are Square, Inc. and On Deck Capital, Inc.
  • Their core business is called Merchant Cash Advance the hallmarks of which are no government regulation, extraordinary high rates of return on asset purchases, and a consistently expanding target market.
  • MCAs are one of the newest fintech services and the field feels like gold rush days.

If a Company Can’t Make Money in its Core Business

Two public companies dominate by revenue the non-bank small business financing space for the last six years. They are Square, Inc. (NYSE: NYSE:SQ) and On Deck Capital, Inc. (NYSE: ONDK). Their core business is called Merchant Cash Advance (MCA). There are a plethora of private MCA companies but we are not discussing them in this article except to point out the competition for SQ and ONDK.

It is disconcerting that SQ and ONDK are rapidly growing revenues but neither generates exciting profits from their core business operations. Retail investors get no respectable ROI. So, I am reluctant to recommend retail investors put money into either of the two companies, but I believe there is more share price growth potential from ONDK in the long run because management is grappling to strengthen its core business.


MCA is New to Fintech

MCA is a largely unregulated industry growing out of and continuing to prosper from the turmoil of the 2007 economic meltdown. MCA growth is stimulated by the banking industry’s froideur to lending to small businesses. MCA companies, on the other hand, specialize in reaching out to undercapitalized businesses, owners with just fair credit ratings, and assets already pledged or doubtfully secure.

A Merchant Cash Advance is not a loan as courts have ruled. Therefore, federal and state governments’ rules and regulations for loans and what is considered usurious lending rates do not apply. Additional fees, commissions to brokers, and penalties merchants may be liable for are also largely unregulated. An MCA is a purchase of future assets with the merchant buying back those assets using future credit and debit cards deposits coming from future sales. I see little standing in the way of the MCA industry continuing its rapid expansion (est. 20% annually).

This article was written by

Harold Goldmeier profile picture
I write for retail value investors who cannot afford to lose money but sometimes like to take a risk. I speak for free to community and school groups. I was teaching business, social/political activism, and Middle East politics to international university students in Tel Aviv b4 the pandemic hit. I consult with startups and mid-level companies. I co-manage Goldmeier Investments LLC with my son Daniel. I founded the Sappanos Decorating Centers, Chicago, with more than 70 employees and real estate holdings in excess of $15m. I am a former Research and Teaching Fellow at Harvard and Assoc. Prof Tufts Medical School.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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