Portfolio Concentration Calculator
Analyze industry and geographic concentration risk in your MCA portfolio using HHI metrics.
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
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.
Run These Numbers Too
Funder Portfolio Diversification Calculator
Assess concentration risk across your funder relationships using HHI analysis.
Stress Test Calculator
Model portfolio performance under adverse scenarios: doubled defaults, tripled defaults, and economic contraction.
Default Rate Impact Calculator
Model how merchant default rates affect portfolio yield, losses, and net returns.
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