Money, credit and collections

Consumer Finance Company Funding

Consumer lenders are excluded from SBA financing and declined by most banks on policy, so their capital comes from specialty lender-finance companies, private credit funds and private investors who underwrite the loan portfolio, the licenses and the compliance program.

Why lenders say no to payday, title & consumer finance companies businesses

Businesses primarily engaged in lending are ineligible for SBA financing under 13 CFR 120.110(b), so the program most small businesses start with is closed.
Most bank credit policies exclude finance companies as a category, and a decade of federal de-risking taught banks to avoid payday and title lenders in particular.
Several large online lenders list financial institutions and lenders among restricted industries, so the fast products decline a consumer lender by policy before underwriting.
The collateral is a portfolio of consumer promises to pay that must be underwritten vintage by vintage, which ordinary small business lenders are not built to do.
Consumer lending is licensed state by state with net worth, bonding and examination requirements, and loans made outside a license support no borrowing at all.
A finance company's growth consumes cash, since every loan written is money out until the portfolio is large enough to fund its own originations.

What actually gets funded

Senior secured lines against receivables: Specialty lender-finance companies and private credit funds advance against eligible receivables through a monthly borrowing base, with covenants on delinquency, charge-offs and net worth, because the loan tape can be examined and the collections controlled.
Warehouse facilities and forward-flow sales: An originate-to-sell lender funds loans in a warehouse until takeout, or commits a buyer to purchase loans as they are made, which brings capital without a balance sheet at the cost of the yield.
Subordinated notes from private investors: High-net-worth investors and family offices buy notes that sit behind the senior lender under an intercreditor agreement, the common first capital for a small chain and the cushion a senior line is later sized on.
Floor plan and portfolio lines for buy here pay here: A floor plan carries the vehicles from auction to sale and a portfolio line advances against the installment contracts, underwritten on static pools, repossession and recovery data.
Real estate and equipment on the storefronts: Owned locations are financed or sold and leased back on their own value, and signage, safes and systems are financed on the equipment, by lenders for whom the industry matters less than the collateral.
Founder equity, in the first position: The first portfolio is written with the owners' capital and underwritten with their discipline, since no lender-finance provider advances against loans with no performance history.

Payday, Title & Consumer Finance Companies funding guides

Capital for Starting or Scaling a Consumer Finance Company: Licensing, Equity and Debt — A new consumer finance company is funded in sequence: the state license, founder equity for the first loans, a seasoned portfolio, subordinated notes, then the first senior line against receivables. The SBA is closed to lenders.
Portfolio Financing for Installment Lenders: How Receivables-Backed Lines Work — Portfolio financing for an installment lender is a revolving line sized monthly by a borrowing base: eligible receivables times an advance rate, less reserves. Eligibility rules, concentration limits, covenants and reporting.
Buy Here Pay Here and Auto Finance Company Capital: Portfolio Lines and Receivables Funding — Buy here pay here dealers and their finance companies are capitalized with a floor plan on inventory, a portfolio line against installment contracts and bulk contract sales. What lenders underwrite and how the three lines fit together.
Why Banks Won't Fund Payday and Title Lenders, and Where Capital Comes From — Banks will not fund payday and title lenders on regulatory and reputational policy, and the SBA excludes lending businesses. Capital comes from lender-finance firms, private credit and private investors underwriting the portfolio.
Financing for Consumer Finance Companies: Senior Debt, Warehouse Lines and Capital — Consumer finance companies are financed through senior secured lines against receivables, warehouse facilities, forward-flow sales, subordinated notes and equity. The SBA is closed to lenders, and the file is the loan tape.

How MercFinancial places payday, title & consumer finance companies requests

MercFinancial is a commercial funding brokerage in Houston, not a lender, with no lender-finance program of its own. A request from a consumer finance company, a payday or title lender or a buy here pay here finance arm is read first: the loan tape, the static pools, the licenses and exam history, the compliance program, the existing stack and the owners' credit. From more than 160 wholesale and institutional funding sources, a specialist identifies the ones whose credit policy allows the category and the facility requested.

One file goes to those sources, the term sheets are compared on advance rate, covenants and cost, and availability always depends on the funding source. When a book is too young or too small for a senior line, a specialist says so plainly and points to what fits today. Stephanie, the AI lending assistant, pre-qualifies in two to three minutes with a soft credit pull, and a free 30-minute call with a funding specialist is booked at the contact page or by phone at (830) 587-5022.

Frequently asked questions

Can a consumer finance company get a business loan?

Yes, through a market most owners never see from a bank branch. Specialty lender-finance companies and private credit funds write senior secured lines against the loan receivables, private investors buy subordinated notes, buyers purchase loans in bulk or on a forward-flow basis, and real estate and equipment lenders fund the stores. The SBA is closed to lenders and most banks exclude them by policy.

Why are finance companies ineligible for SBA loans?

Because 13 CFR 120.110(b) lists businesses primarily engaged in lending, including finance companies and factors, among the businesses the SBA will not finance. It is a rule rather than a lender's policy, so no SBA lender can make an exception for a consumer lender, a payday or title lender, or the finance company behind a buy here pay here dealership.

What is lender finance?

The specialized market of funding sources whose business is lending to lenders. A lender-finance facility is a senior secured revolver against a portfolio of loans, sized by a borrowing base of eligible receivables times an advance rate, with covenants on delinquency, charge-offs, net worth and concentration, monthly reporting and an annual field exam. It is how finance companies fund growth.

How does a payday or title lender get funding?

From specialty lender-finance companies and private credit funds that underwrite the portfolio rather than the industry's reputation, and from subordinated notes sold to private investors, with owned stores financed on their real estate. Banks decline the category on policy after a decade of de-risking, and the SBA excludes lending businesses, so the file is placed only with sources whose policy allows it.

How long before a new finance company can borrow against its loans?

Often a year or more after the first loans, because lender-finance providers want static pool performance through a full collection cycle before they advance against receivables. The first portfolio is funded with founder equity and sometimes subordinated notes, and a company that records clean vintage data from the first loan and keeps its licenses current shortens the wait.

Financing for this industry

Business Funding — Eight programs, one file, 160+ lenders.
Unsecured Business Loans — Term loans and lines without specific collateral, for businesses with steady deposits.

Related industries

MercFinancial is a commercial funding brokerage, not a lender. Approval, loan amount, rate, term and funding are decided by the funding source on the strength of the file; nothing on this page is an offer or a commitment to lend.