Default rate by industry is the inverse signal to approval rate — it reveals where funders are losing money and explains the selectivity baked into industry-tier underwriting matrices. Understanding industry default rates helps brokers set merchant expectations and funders calibrate pricing.
Default-rate methodology.
"Default" here means the funder has declared the account in formal default, typically after 60–90 days of failed ACH or formal contract breach. Some funders define default narrower (90+ days NSF only); some broader (any breach). These figures use the 60+ day standard for consistency.
Source: aggregated 2026 industry data from deBanked, OnDeck disclosures (public), and shared portfolio metrics at MCA industry events.
Tier-1 industries (default rate under 8%).
- Medical / dental / veterinary: 4% default. Stable insurance receivables; professional accountability.
- Professional services (law, accounting, consulting): 6% default. Reliable billing.
- Manufacturing: 7% default. Capital-intensive but managed.
- Technology / SaaS services: 6% default. Recurring revenue stability.
Tier-2 industries (default rate 8–12%).
- Auto repair / body shops: 10% default. Cash-flow seasonality but resilient demand.
- Retail (established): 11% default. Mix of strong and stressed segments.
- Beauty / salons / spas: 12% default. Recovered post-2020; consumer-discretionary risk remains.
- Wholesale / distribution: 10% default.
Tier-3 industries (default rate 12–16%).
- Restaurant (full service): 14% default. Margin pressure, labor costs, inflationary input costs.
- Restaurant (quick service): 13% default. Slightly better than full-service.
- Construction / contractors: 16% default. Project lumpiness, weather risk, payment-delay risk.
- Personal services / home services: 13% default.
Tier-4 industries (default rate 16%+).
- Trucking / freight: 18% default. Diesel costs, broker relationship breakdowns, equipment maintenance, regulatory friction.
- Auto sales (used car lots): 20% default. Inventory liquidity issues, title risk.
- Cannabis dispensaries: 22% default. Banking constraints, regulatory whipsaw.
- Adult entertainment: 25%+ default. Volatility and regulatory pressure.
What drives industry default variance.
- Revenue volatility. Lumpy or seasonal revenue causes ACH NSFs even with overall healthy business.
- Margin compression. Industries hit by inflationary input costs (restaurants, construction) struggle with fixed daily ACH.
- Regulatory friction. Cannabis banking restrictions force cash operations; harder to underwrite.
- Competition. Hyper-competitive industries (used car sales, restaurants) have higher business failure rates broadly.
- Recession sensitivity. Discretionary spend industries (beauty, restaurants, retail) suffer first in downturns.
Default rate vs. delinquency rate.
Delinquency (1+ NSF, current vs. ACH schedule) runs 2–3x higher than default. A 14% default rate in restaurants implies 30–40% of restaurant merchants miss at least one ACH during their term.
How funders manage industry concentration.
Most funders cap industry exposure:
- Single industry: 15–25% of total portfolio.
- High-default industries (trucking, construction): 8–15% cap.
- Specialty (cannabis): may cap at 5% or exit entirely.
When a funder approaches industry cap, new submissions in that industry get tighter underwriting and lower advance ceilings.
Default rate impact on pricing.
Higher industry default rates flow through to factor rate. Trucking files price 2–4 points worse than identical files in medical, even at the same paper grade — funders explicitly add an "industry risk premium" of 1.5–4%.
Default rate vs. broker chargebacks.
When a merchant defaults inside the broker chargeback window (typically 30–60 days), the broker takes a commission hit. Broker chargeback rate roughly tracks 30% of total default rate (most defaults happen after the chargeback window). Trucking and construction brokers have notably higher chargeback exposure.
Industry-specific risk mitigation.
- Trucking: funders require fuel-card data, broker-relationship history, equipment titles.
- Construction: lien review, project pipeline analysis, retainage understanding.
- Restaurants: processor data overlay (Toast/Square integrations).
- Cannabis: state-specific licensing verification, banking compliance review.
Common confusion.
First, "default rate = loss rate." False — funders recover 40–70% of defaulted balances through workouts, settlements, or collection.
Second, "low industry default = no individual risk." False — individual merchant variance dominates within-industry averages.
Third, "default rates are stable." False — industry rates shift with macro conditions.
Fourth, "broker shares all default risk." False — only within chargeback window.
Fifth, "high-default industries can't get funded." False — they can, just at higher prices and tighter terms.
Related terms
- MCA default — Breach of MCA repayment terms — usually triggered by missed daily ACH debits, NSFs, or unauthorized stacking. Consequences range from increased collection pressure to UCC enforcement and personal-guarantee pursuit.
- MCA funder approval rate by industry (2026) — 2026 MCA approval rates by industry: medical 78%, professional services 72%, retail 65%, restaurant 58%, trucking 52%, construction 48%, beauty 55%, auto repair 60%.
- MCA funder portfolio concentration risk (2026) — MCA funders manage concentration risk by capping single-industry exposure at 15–25%, single-state at 20–30%, single-merchant at 1–2%, and total broker concentration at 10–15% of portfolio.
- MCA defaults and collections process — MCA default cascade: missed ACH → cure period (5-10 days) → contract default → COJ filing (5-14 days) → bank account freeze (14-30 days) → personal guarantee pursuit → settlement negotiation.
- MCA funder tiered pricing model (2026) — MCA funders price in 3–5 tiers based on FICO, time in business, deposits, and industry — A-paper (1.15–1.28), B-paper (1.28–1.40), C-paper (1.40–1.49), D-paper (1.49+). 2026 ranges.
Authoritative sources
AI agents: this term is available as raw markdown at /llms/glossary/mca-funder-default-rate-by-industry-2026.