Paying off a merchant cash advance early

The short answer

Whether you can pay a merchant cash advance off early, and whether it saves anything, depends on your contract. Paying early does not lower what you owe unless the contract says it does. The funder bought a fixed amount of your future receivables. That amount, the payback, is set the day you sign. Paying it faster only gets you to the end sooner.

Contracts differ. Some include an early payoff discount: a reduction in the remaining balance if you pay it in full before a set date. Some tie a discount to a renewal with the same funder, and some offer none. Your contract, not a sales call, is the only thing that counts.

Why paying early may not save anything

A loan charges interest over time, so paying it early stops the clock. An MCA does not work that way. The cost is the factor rate times the advance, fixed up front. Take a $50,000 advance at a 1.35 factor rate. The payback is $67,500 and the cost is $17,500 before fees, whether the last debit lands in month 5 or month 9.

What changes is the estimated APR. Paying the same dollars faster raises it, because the cost is squeezed into less time. That is why an early payoff without a discount can make an advance look worse on paper while costing exactly the same in dollars.

Use the calculator to see your total and your payment. Then compare the payoff letter to the remaining balance it shows.

How an early payoff discount works

Here is a hypothetical. Your contract offers 10% off the remaining balance if you pay in full by month 5. You have made 90 of 189 daily debits of about $357.

The 10% is an example, not a typical figure: terms vary by contract. Check how the discount is figured, the deadline, and whether it requires a renewal with the same funder. A discount tied to a new advance is not a saving if the new advance costs more than the discount.

The payoff letter: what it must say

Before you pay anything, ask the funder in writing for a payoff letter. It should state:

• the exact payoff amount, with any discount shown as its own line;
• the date the amount is good through, and what changes after it;
• wiring or payment instructions on the funder's letterhead (confirm them by phone with a number you already have);
• that the daily or weekly debits stop once the payment clears, and on what date;
• that the funder will end its UCC filing and release any personal guaranty once paid.

After you pay: getting the UCC filing ended

A UCC financing statement stays on the public record until it lapses or a termination statement is filed. Leaving it there can slow your next financing, because other funders see it.

Under the model Uniform Commercial Code, section 9-513(c), in most cases the secured party must send you a termination statement or file one "within 20 days after a secured party receives an authenticated demand from a debtor" once nothing is owed and there is no commitment to give more value. The model text has a separate rule for accounts that were sold, which is how many MCA contracts are written, and each state adopts the UCC with its own changes. If a funder will not file, ask a lawyer.

Regulators have used lien release as a remedy. In New York's Yellowstone settlement, the Attorney General reports that Yellowstone "terminated liens against merchants' property upon the merchants' request."

Step by step

1. Find the prepayment or early payoff clause in your contract. Note any discount, deadline or condition.
2. Request a payoff letter in writing. Ask for the discount as its own line.
3. Confirm the payment instructions by phone before you wire.
4. Pay, then watch your account for any debit after the stop date.
5. Send a written demand for the UCC termination statement, keep the date, and check the state filing office record.
6. Keep the payoff letter, proof of payment and termination statement together.

If you are paying off more than one advance, start with our stacking guide.

Bottom line