Can you repay a merchant cash advance early?
By Helm, Business Funding Specialists
- You can repay a merchant cash advance early by making a lump sum settlement
- There are typically no penalties for early repayment
- The total cost does not decrease with early repayment because the factor rate is fixed
- Some providers may offer a small discount for early settlement, but this is not standard
If your business is having a great run and you want to clear your merchant cash advance early, the good news is that most providers allow it. There are typically no penalties or extra charges for settling ahead of schedule.
However, there is an important distinction between early repayment on a merchant cash advance and early repayment on a traditional loan.
Early repayment does not reduce the total cost
With a traditional loan, repaying early saves you money because you stop paying interest on the outstanding balance. With a merchant cash advance, the total cost is fixed from the start by the factor rate.
If you borrow £10,000 at a factor rate of 1.3, the total repayable is £13,000. Whether you repay that over four months or eight months, the total stays at £13,000. Early repayment clears the obligation faster but does not change the amount.
How to repay early
If you want to settle your advance ahead of schedule, contact your provider to request an early settlement figure. This will typically be the remaining balance of the total repayable amount.
- Contact your provider and request a settlement figure
- The settlement figure is usually the remaining balance of the total agreed repayment
- Make a one-off bank transfer to clear the balance
- The automatic card transaction deductions will stop once the balance is settled
- Get written confirmation that the advance has been fully repaid
Do any providers offer early settlement discounts?
Some providers do offer a small discount for early settlement, but this is not standard practice. If early repayment is important to you, it is worth asking about this before signing your agreement.
Where discounts are offered, they are typically modest. A provider might waive 5% to 10% of the remaining fee if you settle within a certain timeframe. Always get any discount offer in writing as part of your agreement.
When early repayment makes sense
Even though early repayment does not reduce the total cost, there are situations where it makes sense.
- You want to clear the obligation before taking on a new advance or top-up
- You prefer to remove the daily repayment deduction from your card transactions
- Your business circumstances have changed and you want a clean financial position
- You are applying for other finance and want to show no outstanding obligations
Early repayment vs faster natural repayment
It is worth remembering that a merchant cash advance naturally repays faster when your card revenue increases. If your business is booming, the daily percentage deductions will be larger, and the advance will clear itself more quickly without any action on your part.
This is one of the built-in advantages of the product. Strong trading automatically accelerates repayment.
Frequently asked questions
Are there penalties for repaying a merchant cash advance early?
Most providers do not charge penalties for early repayment. Check your agreement to confirm, as terms vary between providers.
Will I save money by repaying early?
In most cases, no. The total cost is fixed by the factor rate and does not change based on repayment speed. Some providers may offer a small discount for early settlement.
Can I make a partial lump sum payment?
Some providers allow partial lump sum payments to reduce the outstanding balance. This will shorten the remaining repayment period but may not reduce the total cost.
How quickly can I get a new advance after settling early?
Many providers will consider a new advance immediately after settlement. Some may offer a top-up or renewal at improved terms based on your positive repayment history.