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Funder Portfolio Diversification Calculator

Assess concentration risk across your funder relationships using HHI analysis.

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Why Does Funder Diversification Matter?

Funder diversification protects your brokerage from catastrophic disruption if a single funder relationship fails. If 60% of your deals go through one funder and that funder changes terms, freezes payouts, or goes out of business, you lose 60% of your income overnight. The HHI (Herfindahl-Hirschman Index) measures concentration -- it squares each funder's percentage share and sums them. An HHI below 1,500 indicates healthy diversification. Above 2,500 signals dangerous concentration. This calculator uses the same concentration metric used by the DOJ for merger analysis, applied to your funder portfolio. The goal is not equal distribution (some funders deserve more volume) but avoiding single-point-of-failure dependencies.

How to Use This Calculator

Enter each funder's share of your volume

The percentages should sum to 100%. If you have more than 5 funders, combine smaller ones into the last slot. The analysis focuses on concentration among your largest relationships.

Review the HHI score and risk level

HHI below 1,500: Well diversified. 1,500-2,500: Moderate concentration. Above 2,500: High concentration risk. The calculator also flags if any single funder exceeds 35% of volume.

Apply the recommendation

If concentration is high, identify deals that could go to an alternative funder without significantly impacting terms. Shifting 10-15% of volume from your top funder to your second or third can dramatically reduce HHI.

Key Concepts

HHI (Herfindahl-Hirschman Index)

A standard measure of market concentration. Calculated by squaring each participant's market share percentage and summing. Range: 0 (perfect diversification) to 10,000 (single provider). Below 1,500 is healthy.

Single-Funder Risk

The exposure to one funder changing terms, delaying payments, or exiting the market. Funders have gone bankrupt (Yellowstone Capital), been shut down by regulators, and changed commission structures with little notice.

Strategic Concentration

Deliberately giving more volume to a funder to hit bonus tiers or negotiate better terms, while maintaining backup relationships. This is acceptable if the concentrated funder remains below 40% of total volume.

Expert Insights

The 30/30/20/10/10 Rule: A solid diversification target: 30% to your primary funder (best terms/relationship), 30% to your secondary funder, 20% to a third funder, and 10% each to two backup funders. This produces an HHI of 2,400 -- moderate concentration with strong backup coverage. Adjust based on your specific funder strengths, but avoid exceeding 40% with any single funder.

Funder Financial Health Matters: A diversified portfolio across five funders is not truly diversified if three of them are funded by the same capital source. In 2019-2020, multiple MCA funders backed by the same institutional capital paused or reduced funding simultaneously. Understand who funds your funders -- true diversification means diverse capital sources, not just diverse brand names.

Frequently Asked Questions

Both. Maintain 3-5 deep relationships (enough volume to hit bonus tiers and get priority underwriting) plus 3-5 backup relationships for niche deals and risk mitigation. Total of 6-10 active funder relationships is optimal for most brokerages.

If you are diversified, you redirect those deals to alternative funders within 24-48 hours. If you are concentrated, you scramble to establish new relationships while deals and income stall. Funder pauses happen more often than brokers expect -- capital market disruptions, regulatory actions, and internal management changes can all freeze funding.

Assign a primary contact at each funder and maintain monthly communication even during low-volume periods. Send at least 1-2 deals per month to each backup funder to keep the relationship active. Funders deprioritize brokers who go silent for months and then flood them with deals during a crisis.

Results are estimates for educational purposes only. Actual amounts may vary based on your specific financial situation, market conditions, and other factors. This calculator does not constitute financial advice.