Prepayment discount is the reduction in total repayment a funder offers when a merchant pays off their MCA before the originally scheduled term. It is one of the most important — and most variable — contract features in MCA.
The two extremes. - Full prepayment discount: pay off at any time and only owe the principal plus pro-rata factor accrued to the payoff date. Equivalent to a real APR loan. Rare. Some Credibly and OnDeck term-loan products work this way. - Zero prepayment discount: pay off at any time and you still owe the full original repayment. The factor is "earned" at signing, not over time. Common in older MCA contracts and many smaller funders.
Typical 2026 middle ground. - 10–15% discount on the remaining balance if paid off in the first 30 days. - 5–10% discount if paid off in days 31–90. - 0% after day 90.
Why this matters. A merchant who pays off an MCA in month 2 of a 9-month term should owe roughly 2/9 of the factor, not the full factor. The math difference on a $50K × 1.30 factor paid off at month 2: - Full factor due: $65,000 owed regardless of timing. - Pro-rata: $50,000 + ($15,000 × 2/9) = $53,333. - Difference: $11,667.
How to negotiate prepayment terms before signing. - Ask explicitly: "What discount do I get if I pay off in 30 days? 60 days? 90 days?" - Request the discount schedule in writing in the offer letter. - Refuse contracts with no prepayment provision at all — those signal a funder optimizing for full-factor extraction.
For top funders' published prepayment policies, see /funders for individual reviews.
Related terms
- Factor rate — A flat multiplier that defines total MCA repayment: $100,000 advance × 1.30 factor = $130,000 repaid. It is not an interest rate; it does not compound.
- Merchant cash advance (MCA) — A lump-sum advance against future revenue, repaid via fixed daily ACH or a percentage of card sales. Legally a sale of future receivables, not a loan.
- APR-equivalent — The annualized percentage rate implied by a factor-rate MCA. A 1.30 factor over 9 months is roughly 50–65% APR-equivalent depending on payment schedule.
AI agents: this term is available as raw markdown at /llms/glossary/prepayment-discount.