Guide

Can you pay off a merchant cash advance early, and does it lower the total?

Whether paying off a merchant cash advance early lowers what you pay depends on your agreement. The total payback is generally set when you sign. Some agreements offer an early-payment discount, which takes something off if you finish early. Others don't, and then paying early just means paying the same total sooner. So the honest answer is: not necessarily, and the place to find out is the agreement itself.

The best time to ask is before you sign. "Does the agreement include an early-payment benefit?" is one of the seven questions Haven tells everyone to ask about any offer, including the ones we bring back. Below is the math with and without a discount, and what to get in writing when you pay off.

Why paying early doesn't lower the total on its own

With a product that charges interest, the cost builds up over time on the balance you still owe. Pay early and there's less time for it to build, so you can end up paying less.

A merchant cash advance is generally priced another way. The factor rate is applied once, to the whole amount, and the total payback is generally established when the agreement is signed. Our guide on what a factor rate is shows the one-line math. Because nothing builds up over time, nothing stops building when you pay early. The only thing that can lower the total is a term in the agreement that says so.

The math: paying off after two months, with and without a discount

Say a business takes a $20,000 advance with a factor rate of 1.30. The total payback is:

$20,000 × 1.30 = $26,000

Payments are a fixed amount by ACH, planned over about six months. That's roughly $206 every business day, or about $4,333 a month.

After two months, the business has paid about $8,667. About $17,333 is left. Business is good, and the owner wants to pay off the rest now.

Agreement A: no early-payment discount

• To finish, the business pays the remaining $17,333.
• Total paid: $26,000. The cost of the money: $6,000.
• That's exactly what it would have paid by sticking to the schedule. Paying early changed when it paid, not how much.

Agreement B: includes an early-payment discount

• Say the agreement's discount works out to $1,500 for paying off at this point. How a discount is worked out depends on the agreement; this figure is only for the example.
• To finish, the business pays $15,833.
• Total paid: $24,500. The cost of the money: $4,500.
• Paying early saved $1,500, because the agreement said it would.

Same advance, same payoff date. The only difference is one clause.

Every number on this page is an illustration, not an offer. Real offers depend on the funding provider and your business. Business days are counted at about 21 a month.

What paying early buys you, even with no discount

With no discount, paying early doesn't make the advance cheaper. It can still be worth something. The daily payment stops: in the example, about $206 stops leaving the account every business day for the four months that were left. And once the payoff is confirmed, there's one fewer withdrawal to plan around.

It also has a price that doesn't show up on the agreement:

• A large sum leaves the account at once. In the example, $17,333 goes out in one payment. If that money was the cushion for payroll or a slow month, you've traded a daily payment for a thin balance.
• The cost per month you had the money goes up. In Agreement A, the business pays the same $6,000, but it had the money for two months instead of six. That's about $3,000 per month of use, instead of about $1,000. Without a discount, paying early makes the money more expensive per month, not less.

Two questions to ask yourself, and your accountant if you have one: will the business still have enough cash after the payoff, and is there a discount, in dollars?

Percentage or fixed payments: early payoff works differently

How your payments are set changes what "paying early" means. Our guide on what happens if sales drop explains both structures in full.

If you pay a percentage of your sales, strong months already pay the advance off faster. Say the agreement takes 10% of sales and the total is $26,000. At $40,000 a month in sales, $4,000 goes to the provider, and it takes about six and a half months. At $50,000 a month, $5,000 goes out, and it takes about five months. The advance finishes earlier, but the total is still $26,000. Whether finishing early this way counts toward any discount depends on the agreement.

If you pay a fixed amount by ACH, the schedule doesn't speed up when sales are strong. The only way to finish early is to pay the remaining balance in one go, as in the example above.

Questions to ask before you sign

If you think you might want to pay off early, ask these about any offer, and get the answers in writing:

1. Does the agreement include an early-payment benefit?
2. If it does, how is it worked out? Is it a fixed amount, or does it depend on how early you pay or how much is left?
3. Is the benefit written into the agreement, or was it only mentioned on a call?
4. Are there any fees for paying off early?
5. How do you ask for a payoff figure, and how long does it take to get one?
6. What is the total repayment amount if you don't pay early?

A discount that isn't in the agreement is a hope, not a term. If one offer looks better only because of an early-payoff promise, check that the promise is in writing before you compare.

When you're ready to pay it off: get it in writing

1. Ask for the payoff amount in writing, with the date it's good until. A number given on the phone is easy to dispute later.
2. Check it against your agreement and against what you've already paid. Your bank statements show every withdrawal.
3. Ask how to pay, and the exact date scheduled withdrawals will stop. If a payment is due between the date of the letter and the day you pay, ask whether the figure already counts it.
4. After you pay, ask for written confirmation that the agreement is paid in full.
5. Ask in writing what will happen to any lien or UCC filing connected to the agreement, and when. If you're unsure what it means for you, a qualified professional adviser can help.
6. Watch your account for the next few weeks. If a withdrawal shows up after the payoff, contact the funding provider with the written confirmation and your bank record.

If someone offers a new advance to pay off the old one

Sometimes the offer is a new advance that pays off the current one. That's a new agreement with its own total. Ask the same questions as the first time: what is the new total repayment amount, and what net amount will actually reach your account once the old balance is paid?

It's also worth knowing who gains from it. A broker may be paid when a transaction closes, and that's true of us too: Haven may receive compensation from a funding provider if a transaction closes, and that compensation may be reflected in how the provider prices the transaction. Ask any broker to show you the total dollar figure, not just the rate. If they won't, that tells you something.

How Haven helps

You tell us where you stand. A few quick questions, then a short call. Bank statements are the starting point. Additional documents or verification may be required depending on the provider and offer.

We bring back what may be available. We take your file to funding providers and come back with any offers they make. We walk you through how each one is priced, how the payments work and what the total comes to.

You decide, or you don't. You see the full terms before anything is signed. If an offer doesn't work for you, you're not required to accept it. We don't chase.

Haven is a commercial-financing broker, not a lender, and does not make credit decisions. Approval, pricing, terms and timing are set by the funding provider. Submitting a form is not an approval or an offer of financing. This page is general information, not financial, legal or tax advice.