MCA “Early Repayment Discounts” vs. Reality
Salespeople love to pitch “30% if you pay within 30 days” or “20% within 60.” What they don’t say: most early payoff discounts don’t apply if a third party pays off your MCA (like a refinance), many agreements are non-cancellable, and “renewal at 50% paid” does not make an MCA a line of credit. Here’s the plain-English breakdown—no fluff.
On this page
Early Payoff “Discounts” — What’s Actually Discounted? Comparison: Early Payoff vs. Prepayment vs. No Penalty vs. Non-Cancellable Example Math (Why “30% Off” Isn’t What You Think) Why MCA ≠ Loan and Definitely ≠ Line of Credit Amortization & Tax Treatment Daily/Weekly Debits, NSF Landmines & DataMerch Risk Stacking, Renewals & Non-Competing Capital Red Flags: Pricing & Shady Pitches Top Rules: What to Avoid (and Why) 9 Questions to Ask Before You Sign Free, No-Obligation Review1.60× + 8%
Total Payback Example: A 1.60 factor plus 8% fees = you owe ~68¢ for every $1 advanced. That’s before “renewals.”
No prepayment benefit ≠ no penalty
Third-party payoff voids “discount”
Renewal ≠ LOC
Early Payoff “Discounts” — What they really mean
Most MCA “discounts” are marketing language. They often reduce a portion of the uncollected factor amount if you pay from your own funds within a short window (e.g., 30–60 days). Key gotchas:
- Third-party payoff ≠ discount. If another lender refinances or “buys out” the MCA, many contracts void the discount and you still owe the full factor (or a tiny courtesy credit).
- “Own funds” only. “Early payoff” usually means cash from your operating account—not proceeds from another advance or loan.
- Applies to factor, not fees. Upfront origination/JD/processing fees are not discounted.
- Short fuse. Discounts are time-boxed (30–60 days). After that, you’re back to full factor or a minimal reduction.
Transparency Problem: Many reps quote the same round numbers (“30% in 30 days; 20% in 60”) without stating the “own funds only” clause or the third-party payoff exclusion. If they explained it fully, you wouldn’t proceed—so they don’t.
Comparison Table
| Structure | What You Owe if Paid Early | Third-Party Payoff | Typical Language in the Wild | Risk to You |
|---|---|---|---|---|
| Early Payoff “Discount” (MCA) | Partial reduction of remaining factor if paid with your own funds within 30–60 days | Often voids discount; you owe near-full factor | “30% off if paid in 30 days” | High if relying on a refinance to get the discount |
| Prepayment Discount (Loan) | Interest re-calculated or reduced; you benefit from paying early | Usually allowed; governed by payoff quote | “No penalty + interest only to date” | Low-Medium |
| No Prepayment Penalty (Non-cancellable lease) | No discount; you still owe the stream (or buyout amount). Not the same as a loan. | N/A | “No penalty to pay early” (but no savings either) | Medium due to zero benefit for early pay |
| Non-cancellable FMV Lease | Payments continue; FMV buyout at end (surprise balloon) | N/A | Marketed as “lease-to-own” but it’s FMV | Medium-High if you expected $1 buyout |
Example Math: Why “30% Off” May Not Save You
Scenario: You receive $100,000 at a 1.60 factor plus 8% fees.
Your cost baseline
- Advance: $100,000
- Fees (8%): $8,000 (non-discounted)
- Total factor payback: $160,000
- Total owed (factor + fees): $168,000
“30% in 30 days” pitch: Many think they’ll owe $168,000 × 70% = $117,600 if they refinance in 30 days. No. If a new lender pays it off, the discount likely doesn’t apply. You may still owe near the full factor plus fees.
Bottom line: Early payoff “discounts” are often designed to be used only with your own cash, not with borrowed funds. If you needed a refinance to pay it, your “discount” may vanish.
Why an MCA is neither a Loan nor a Line of Credit
- MCA ≠ loan: It’s a purchase of future receivables with a fixed payback amount (factor). No interest amortization schedule.
- “Renewal at 50% paid” ≠ LOC: Being eligible for more capital mid-term doesn’t make it revolving credit. It’s a new obligation layered on top (stacking risk).
- LOC is non-competing capital: A true bank/fintech LOC can coexist if permitted; it’s not the same product and usually cheaper if you qualify.
Pro move: If you must combine products, pair an MCA only with a non-competing product (e.g., true LOC or equipment loan) and avoid stacking multiple MCAs.
Can you amortize an MCA?
No. There’s no interest schedule to amortize. You repay a fixed factor amount via daily/weekly draws until satisfied.
How do businesses deduct MCA costs?
Generally, the fees/discount (factor cost) are treated as ordinary business expenses (cost of capital) rather than interest from a loan. Consult your CPA for proper treatment based on your accounting method and jurisdiction. This is not tax advice.
Daily/Weekly Debits, NSF Traps & Why They Matter
- Why daily/weekly? Lenders want fast recovery tied to your cashflow; it reduces their risk window.
- NSF spiral: Multiple insufficient-funds events trigger lender fees and bank fees, drain cash, and flag you as high-risk.
- Reputation risk: Excess NSFs, default, blocked debits, or switching banks mid-deal can get you labeled as high-risk or even blacklisted in industry databases (e.g., DataMerch).
Don’t block your lender. If there’s stress, negotiate a temp reduction, remittance plan, or short-term relief. Blocking debits first makes everything worse.
Stacking & Renewals: Read before you layer debt
- Avoid stacking MCAs. It drives default risk and future denials.
- Don’t stack on top of an A-lender. Many A-lenders won’t renew if you stack; you’ll fall into worse pricing tiers.
- Wait it out or use non-competing capital. A proper LOC or equipment loan doesn’t “compete” with an MCA the same way.
Three (actually, five) things to avoid
- Avoid stacking.
- Avoid “debt relief / consolidation / reverse MCA.” These rarely fix the root problem and can torpedo future funding.
- Don’t block debits or stop your bank. Negotiate first.
- Don’t hop banks mid-stream. It looks like default/fraud and can get you blacklisted.
- Don’t stack after an A-lender. You’ll lose renewal options.
Pricing Red Flags & Shady Pitch Decoder
| What you hear | What it often means | Why it’s a problem | Better move |
|---|---|---|---|
| “1.50–1.60 factor + only 5–8% fees” | Total cost is ~55–68% of the amount advanced | Crippling effective cost; renewals snowball | Price multiple offers; explore LOC/equipment loan |
| “It’s like a line of credit.” | Renewal at 50% paid; not revolving credit | False equivalence; you’re stacking new liability | Ask for actual LOC underwriting or bank options |
| “30% off within 30 days.” | Discount likely own funds only; 3rd-party payoff voids it | Refi won’t earn the discount—you’ll owe the spread | Get discount language in writing; confirm payoff rules |
| “Lease-to-own” (but it’s FMV) | Fair Market Value buyout, not $1 | Surprise balloon at end | Insist on $1 buyout or TRAC (if applicable) |
Rules of the Road (Keep your business bankable)
- Keep NSFs near zero; communicate early if revenue dips.
- Avoid multiple MCAs; if you must pair, use non-competing capital (true LOC or equipment loan).
- Don’t change banks or block the lender without a negotiated workout plan.
- Scrutinize “discount” language—especially third-party payoff exclusions.
- Refuse vague quotes. Demand written payoff quotes and schedules.
9 Questions to Ask Before You Sign
- Does any “early payoff discount” apply if another lender pays you off?
- Is the discount against remaining factor only, or total owed including fees?
- What are total dollars due today, in 30/60/90 days?
- What are the daily/weekly debit amounts at my current revenue level?
- What’s my renewal threshold, and will stacking kill renewal?
- Is this a loan, lease, or receivables purchase? Show me the section that proves it.
- Is the agreement cancellable? If not, what’s the exact buyout math?
- What triggers default/NSF fees and how many grace events are allowed?
- Will this be reported to industry databases (e.g., negative events)?
Short on time? Send us your agreement. We’ll annotate the gotchas and give you straight guidance—free and fast.
Free, No-Obligation MCA Review
We’ll compare your offer, decode the “discounts,” and map cheaper options (LOC, equipment financing, SBA-style, etc.).
Disclaimer: This page is for informational purposes only and is not tax, legal, or accounting advice. MCAs, leases, and loans have materially different legal and financial consequences. Always review your specific agreement and consult a qualified professional.
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