Paying Off a Merchant Cash Advance Early
Paying off a merchant cash advance early: when it saves money and when it doesn't.
Paying off a merchant cash advance early saves money only if the contract or the funder gives you a discount. The price is usually fixed when you sign. You sold a set amount of future sales, and that amount is owed whether it takes four months or eight. Some funders waive part of the unpaid fee for an early payoff. Get that promise in a written payoff letter before you send money.
Why doesn't the price shrink when you pay early?
A loan charges interest over time, so paying early stops the interest. An advance works differently. The funder bought a fixed amount, called the purchased amount. That's the advance times the factor rate. It doesn't grow if you're slow and it doesn't shrink if you're fast. Paying $40,000 now or over the next six months is still $40,000 unless someone agrees to take less.
That's why early payoff is a question for the funder, not a math trick. The only savings are the ones the funder puts in writing.
Where do the early payoff terms live?
Look in three places:
- The contract's prepayment section. Some list a discount, some say there's none, and some are silent.
- The state disclosure, if your state has one. Connecticut's form has a line for charges or fees on prepayment or refinance, and Virginia's list of required disclosures includes what happens to the balance if you pay off or refinance.
- Your offer email or the funder's rate sheet. A discount promised only on a call isn't a promise. Ask for it on paper.
If you can't find it, ask the funder one plain question: if I pay the full balance this month, what's the exact payoff amount?
What does the math look like on a real balance?
Say you took $50,000 at a 1.40 factor. You owe $70,000 in total, so the fee is $20,000. You've paid $35,000, which leaves $35,000. If you spread the fee evenly over the payback, half of it, $10,000, is still unpaid. Here's what different discounts mean:
| If the funder waives | Payoff amount | You save | Total cost of the advance |
|---|---|---|---|
| Nothing | $35,000 | $0 | $20,000 |
| A quarter of the unpaid fee | $32,500 | $2,500 | $17,500 |
| Half of the unpaid fee | $30,000 | $5,000 | $15,000 |
| All of the unpaid fee | $25,000 | $10,000 | $10,000 |
Run your own numbers in the early payoff calculator. If you have a quote from the funder, enter it and see what share of the unpaid fee it really waives.
When doesn't paying early make sense?
- The money to pay it off comes from a new advance. Then you pay a brand-new fee to save part of an old one. Check that trade in the renewal calculator first.
- There's no discount. You'd give up your cash cushion and save nothing.
- The payoff would leave you short in your slowest month. A lower balance doesn't help if payroll bounces.
- You're paying early because the daily debit hurts. A reconciliation request may fix that without the cash.
What should you ask for before you send the money?
- A written payoff letter with the exact amount, the date it's good through, and where to send it.
- Confirmation that the daily or weekly debit stops once the payoff clears, and the date that happens.
- A zero-balance letter after the payoff clears.
- A UCC-3 termination of the funder's lien. Under UCC § 9-513 you can demand one once nothing is owed.
- If a broker placed the deal, a note on whether any fee is due to anyone else. There shouldn't be.
How can Afterfirst help?
If you're thinking about paying off to take a new advance, tell us the payoff amount and we'll show you the net new cash on any offer, in dollars, before you decide. Applying is free, and you never pay Afterfirst a fee. The funder pays our commission only if a deal funds, and the amount is in the offer paperwork before you sign.
Behind on an advance, or about to be?
We can check whether consolidation or a reverse consolidation fits before anything gets worse. Call 877-FUND-654 with any question. We call you back, usually the same business day, and we always talk with you before we shop your file.