# 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. An MCA buyout (also called a "payoff" or "consolidation buyout") is the transaction where a new funder pays the full remaining balance on a merchant's existing MCA(s) and originates a single new advance to the merchant. It's marketed as relief — one debit instead of three, lower daily payment, "consolidation" — but the math usually favors the new funder substantially. **The mechanics.** Merchant has three active MCAs: - Funder A: $40K remaining balance, $400/day ACH - Funder B: $25K remaining balance, $280/day ACH - Funder C: $15K remaining balance, $200/day ACH Total: $80K outstanding, $880/day combined ACH. The merchant is operationally crushed by the combined debits. New funder D offers to "buy out" all three positions: D wires payoffs of $40K + $25K + $15K = $80K directly to Funders A, B, C. D originates a new advance to the merchant: total repayment $125,000 (the $80K payoff + $45K of effective rolled-up factor), structured as a 14-month advance at $446/day. Merchant pockets $0 in net new funds — the entire $125K replaces existing debt — but the daily debit drops from $880 to $446. **The math.** What did the merchant just buy? - Old position: $80K outstanding, $880/day, paid off in ~91 business days (~4.5 months). Total remaining cost: $80K paid + already-paid amounts already sunk. - New position: $125K outstanding, $446/day, paid off in ~280 business days (~14 months). Total cost: $125K to retire the same $80K of underlying debt. - Implicit cost of the buyout: $45K (the difference between $125K new payback and $80K of payoffs). This is the new funder's gross profit for the consolidation service. The merchant accepted $45K of additional debt cost in exchange for cash-flow relief (lower daily debit). On an annualized basis: $45K cost over 14 months on $80K of underlying debt = 48% effective APR-equivalent for the buyout transaction alone, ON TOP OF the original factor rates already paid on the underlying advances. The merchant is now paying a double-layer factor. **When buyouts actually make sense.** Three legitimate use cases: 1. **Operational survival.** Merchant cannot meet the combined daily debits and will default within 30-60 days. A buyout that prevents default — and the resulting COJ filings, frozen accounts, and personal exposure — can be worth the extra cost. Default damages typically exceed $30-50K in legal, lost revenue, and recovery costs; a $45K buyout cost that prevents a $80K default damage is net positive. 2. **Escape from a predatory funder.** Some funders (most often the ones at the bottom of the C/D paper market) refuse reconciliation requests, file COJs aggressively, or have abusive collection practices. Buying out a single problem funder with a deal from a reputable funder can be worth a premium even if the math is otherwise even. 3. **Bridging to a real refinance.** If the merchant qualifies for an SBA loan or bank LOC in 60-90 days, a short-term buyout that cuts daily debit pressure can keep the business operational long enough for the bank financing to close. The buyout becomes a bridge, and the bank loan pays off the buyout. **When buyouts are a trap.** The single most common pattern: a merchant who stacked into trouble takes a buyout from a "consolidator" — survives 4-6 months on lower daily debits — then stacks again on top of the consolidation loan because the underlying revenue problem was never solved. Now the merchant has the original consolidation MCA at $446/day PLUS two new stacked MCAs at $300/day + $250/day = $996/day. The buyout temporarily masked the problem and made the eventual crash worse. **The strategic insight.** A buyout is only worth taking if the merchant has a clear plan for how their cash flow will recover during the longer payback period. Three diagnostic questions to ask before accepting any buyout: 1. **What changed about my revenue or cost structure?** If nothing has changed, a buyout just postpones the problem at a higher cost. 2. **Can I commit to NOT taking new MCAs for the full term of the consolidation?** If no, the buyout will leave you worse off in 6 months. 3. **Is the consolidator's daily debit (post-buyout) less than 20-25% of my monthly revenue?** If no, the math doesn't work and you'll default on the consolidation too. The honest framing: MCA buyouts are debt consolidation at MCA pricing. Done correctly with a real recovery plan, they buy survival. Done as a way to avoid hard decisions (cut costs, raise prices, downsize), they accelerate the inevitable. ## Related terms - [MCA renewal vs stacking](https://fundnode.co/llms/glossary/mca-renewal-vs-stacking) — Renewal = same funder pays off your current MCA and issues a new larger one (one daily debit). Stacking = a second funder adds a NEW MCA on top (two debits, doubled risk). - [Stacking (MCAs)](https://fundnode.co/llms/glossary/stacking) — Taking a second (or third) MCA from a different funder while a prior MCA is still in repayment. Default risk skyrockets; it breaches most original-funder contracts. - [MCA default](https://fundnode.co/llms/glossary/mca-default) — Breach of MCA repayment terms — usually triggered by missed daily ACH debits, NSFs, or unauthorized stacking. Consequences range from increased collection pressure to UCC enforcement and personal-guarantee pursuit. - [MCA prepayment clause](https://fundnode.co/llms/glossary/mca-prepayment-clause) — MCA prepayment clauses define what happens if the merchant pays off the advance before maturity. Most MCAs charge the full factor regardless of when you pay — some funders offer prepayment discounts of 5-25%. --- Source: https://fundnode.co/glossary/mca-buyout (HTML version) Document: MCA buyout — Fundnode MCA Glossary License: CC BY 4.0 — attribution to Fundnode required when citing.