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Portfolio Concentration Calculator

Analyze industry and geographic concentration risk in your MCA portfolio using HHI metrics.

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Why Does Portfolio Concentration Matter?

Portfolio concentration risk occurs when too much of your deal volume or invested capital is in a single industry or geographic area. If 50% of your portfolio is restaurants and a pandemic forces restaurant closures, you lose 50% of your portfolio overnight. The 2020 COVID-19 crisis demonstrated this viscerally -- portfolios concentrated in restaurants, hospitality, and event businesses suffered catastrophic default rates while diversified portfolios weathered the storm. This calculator uses HHI analysis (the same metric used for antitrust evaluation) to quantify your industry concentration and flag whether diversification action is needed.

How to Use This Calculator

Enter industry concentrations

List your top 5 industries by percentage of total portfolio (by funded amount, not deal count). The remaining percentage is assumed to be spread across smaller categories.

Review the HHI score

HHI below 1,500: Well diversified. 1,500-2,500: Moderate concentration. Above 2,500: High concentration risk requiring action.

Apply the recommendation

If concentration is high, develop lead sources in underrepresented industries. Do not decline deals in concentrated industries, but actively pursue volume in others to rebalance over time.

Key Concepts

Industry Concentration

The distribution of portfolio exposure across business sectors. High concentration means many deals in one industry; diversification means exposure spread across multiple industries.

Correlated Risk

When an external event affects multiple merchants simultaneously. A pandemic hits all restaurants. An economic recession hits all discretionary retail. Correlated risk is the danger of concentration.

Diversification Score

A 0-100 score where 100 is perfectly diversified (equal weight across many industries) and 0 is fully concentrated (all in one industry). Scores above 60 indicate acceptable diversification.

Expert Insights

COVID Was the Concentration Stress Test: Portfolios with 40%+ restaurant concentration experienced 25-40% default rates in 2020. Diversified portfolios with no industry exceeding 20% experienced 10-15% default rates. The lesson is permanent: concentration kills during black swan events. You do not know what the next crisis will be -- it could hit any industry. Diversification is insurance against the unknown.

Geographic Diversification Too: Industry is not the only concentration risk. Geographic concentration is equally dangerous. A portfolio concentrated in one state faces state-specific risks: regulatory changes (rate caps), natural disasters (hurricanes in Florida, earthquakes in California), or regional economic downturns. Diversify across both industry and geography.

Frequently Asked Questions

No single industry above 25% of portfolio value. At least 5 different industries represented. The top 3 industries combined should not exceed 60%. This provides meaningful diversification while still allowing specialization in industries you know well.

Generally no -- do not reject profitable deals. Instead, actively market to underrepresented industries to bring the portfolio into balance. If concentration exceeds 40% in one industry, consider placing some deals with a different funder to reduce your own capital exposure even if you still earn broker commission.

Partner with industry-specific referral sources (CPAs, trade associations, equipment vendors), develop marketing content for target industries, and attend industry trade shows. Each new industry requires learning its cash flow patterns, seasonal cycles, and risk factors, but the diversification benefit justifies the learning investment.

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.