Weighted Average Life
Weighted average life (WAL) measures the average time MCA principal remains outstanding — a critical metric for capital markets pricing, warehouse facility advance rates, and securitization structure design.
Why This Matters
WAL calculation: weighted average of expected principal outstanding by time period. MCA WAL is typically 4-8 months given short repayment cycles. Shorter WAL means faster capital turnover (positive for funders) but also less time to absorb interest income (offsetting effect). Capital markets investors price MCA portfolios partially on WAL — shorter WAL portfolios receive favorable pricing given faster principal return and reduced interest rate risk. Warehouse facilities and securitizations use WAL in advance rate determination and cash flow waterfall design.
Frequently Asked Questions
Frequently Asked Questions
Why is MCA WAL shorter than traditional lending?
Daily ACH repayment dramatically accelerates principal return. Traditional 5-year amortizing loan has 2.5+ year WAL; MCA with 6-month repayment has 3-4 month WAL. Short WAL is fundamental to MCA capital efficiency.
How does WAL affect MCA funder economics?
Shorter WAL means more annual capital turnover — same warehouse facility can fund 2-3x more annual originations than for traditional lending. WAL is structural advantage of MCA business model.