MCA buyout discount typical refers to the pricing convention when a new funder pays off a merchant's existing MCA balance with another funder as part of a refinance, consolidation, or competitive-takeout transaction. The discount is the difference between what the new funder pays the old funder versus the full contractual remaining balance.
The mechanics — how a buyout transaction works. Three parties are involved: the merchant, the original funder, and the buyout funder. The sequence: 1. Merchant negotiates new advance with buyout funder. Funder approves new advance amount. 2. Buyout funder requests payoff letter from original funder. Original funder issues a payoff statement showing remaining RTR balance as of a target date. 3. Buyout funder negotiates discount. Buyout funder offers to pay original funder a discounted amount (e.g., $85K on a $100K remaining balance) in exchange for full release. 4. Original funder accepts (usually) and provides release. Original funder receives the discounted payment, marks the deal as paid in full, and releases UCC filings and personal guarantee obligations. 5. Buyout funder issues new advance. Buyout funder funds the merchant for the new advance amount, with the buyout payment to original funder netted out of merchant proceeds.
The math — typical buyout discount. Worked example: - Merchant owes original funder $100K remaining RTR (advance was $80K at 1.35 factor, $108K total repayment, $8K paid down so far). - Buyout funder offers new advance of $150K at 1.30 factor. - Buyout funder requests payoff at 90% of remaining RTR = $90K paid to original funder. - Original funder accepts $90K instead of waiting for full $100K collection over remaining 6-month term. - Buyout funder funds: $150K new advance × $90K paid to original = $60K net to merchant. - New repayment: $150K × 1.30 = $195K over new term.
The math — why original funder accepts the discount. Original funder's calculation: - Hold to maturity: collect $100K over 6 months at ~1% monthly default loss = ~$94K expected net. - Take buyout: receive $90K cash today, redeploy into new origination earning ~15% annualized = $90K × 1.075 effective 6-month return = $96.7K equivalent. - Plus avoid default-risk volatility and free up capital for new origination.
Original funder is generally indifferent between the two outcomes — the discount approximates the time-value of money plus default-risk premium.
The math — why buyout funder pays only 90%. Buyout funder's calculation: - Pay $90K to acquire $100K of contractual RTR on existing deal. - $10K of immediate "discount profit" (the spread between what they paid and what they're entitled to collect). - Plus they're earning factor-rate economics on the new $150K advance. - Discount profit compensates for the operational complexity of running the buyout transaction.
The ranges — discount percentages by scenario. Buyout discounts vary by: - Standard refinance buyout (merchant moving from B-tier to A-tier funder): 8-12% discount typical. - Distressed-funder buyout (original funder in operational distress, eager for capital): 15-25% discount possible. - Competitive takeout (buyout funder aggressively targeting original funder's customer): 5-10% discount typical (less pricing power because original funder is healthy). - Modification / extension (same-funder buyout into longer-term replacement deal): 0-5% discount (essentially no discount because the funder is just restructuring with itself).
The strategic insight — what merchants need to know. Three points: 1. Buyout discount is funder-to-funder; merchant doesn't see it directly. Merchant gets net proceeds after buyout payment. The discount math determines whether the buyout funder can offer favorable economics, but it doesn't directly reduce merchant cost. 2. Buyout deals usually carry higher new-deal factor rates. Buyout funders price the new advance at 0.03-0.08 above their standard-deal pricing because the operational complexity of buyouts carries cost. 3. Buyout consolidates UCC filings and PGs. A meaningful side-benefit: the merchant's UCC filing from the original funder is released and replaced by the buyout funder's single filing. Cleaner credit profile.
The strategic insight — when buyout makes sense. Three scenarios where buyout produces merchant value: 1. Original deal pricing is materially worse than current market. If the original deal is 1.42 factor and current market is 1.28, buyout-and-refinance captures significant savings even with the buyout funder's elevated new-deal pricing. 2. Stacking consolidation. Merchant has 2-3 stacked MCAs; single buyout consolidates them into one new deal with one daily debit. Operationally meaningful. 3. Funder relationship problem. Original funder has poor servicing, billing errors, or relationship dysfunction. Buyout exits the bad relationship.
The strategic insight — when buyout destroys value. Three scenarios where buyout is the wrong move: 1. Original deal was priced excellently. If original factor is 1.20 and current market is 1.32, buyout pays new-deal factor on the consolidated balance — losing the original pricing advantage. 2. Original deal is nearly paid off. Buying out a deal with 2 months remaining and 80% paid down adds origination overhead with little structural benefit. 3. Buyout funder is materially worse credit. If the buyout funder has worse default-management or aggressive collections, the merchant trades known relationship risk for unknown risk.
The honest framing. Buyout discounts of 8-12% are the 2026 market norm, and the discount benefits funder-to-funder economics, not directly merchant economics. Buyouts make sense when original pricing is meaningfully bad or when consolidation produces operational clarity; they destroy value when used on well-priced or nearly-complete deals. Merchants should evaluate buyouts based on net new-deal economics versus letting the original deal complete on schedule — not based on the headline "discount" the buyout funder receives.
Related terms
- MCA buyout — When a new funder pays off your existing MCA and issues a single replacement advance — used to consolidate stacked positions or escape a predatory funder. Often costly net-net.
- MCA buyout vs renewal — Buyout = new funder pays off existing MCA balance and replaces it with their own advance. Renewal = same funder issues a new advance, typically netting off the remaining balance. Buyout escapes a bad funder; renewal extends with the current one.
- MCA buyout calculator — A tool that computes the cost of consolidating one or more existing MCAs into a new larger advance — netting the gross payoff balances against the new funding amount to show the actual wire-to-merchant and the new daily debit.
- MCA portfolio buyout — A transaction where one funder purchases the entire MCA portfolio (or selected deals) from another funder — typically at a discount to outstanding RTR (60-85% of book value depending on portfolio quality, default rate, and merchant retention probability). Used in funder exits, distressed-funder workouts, and strategic acquirer roll-ups.
AI agents: this term is available as raw markdown at /llms/glossary/mca-buyout-discount-typical.