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Buyout
Also called payoff, refinance buyout, take-out.
A new funder paying off an existing advance or loan, either fully or partially, and folding that payoff into the new balance.
Drafted with AI assistance. Not yet independently checked. Nobody has verified the claims on this page against a source, so treat the figures and legal points as a starting point rather than as settled, and confirm anything you are about to act on. How we check things.
What it means
The mechanics are straightforward: the new funder requests a payoff letter from the incumbent, wires that amount directly, and funds the merchant the remainder. A full buyout clears the old position entirely; a partial buyout, sometimes called an add-on or a 50 percent buyout, pays down part of the old balance while both facilities continue, and the merchant carries two debits.
The number that decides whether a buyout is worth doing is the payoff figure. On an amortizing loan it is principal plus accrued interest, so the unearned interest disappears. On a factor-rate advance the payoff is normally the unpaid purchased amount, which contains the entire remaining fee. Some funders offer a discount for early payoff, some publish a schedule of discounts, and many offer nothing.
This is where the cost compounds. If the payoff includes unearned fee, that fee is added to the new advance and a new factor is applied on top of it. You pay a fee on a fee. Repeat that across three renewals and the effective cost of the original money is far above anything quoted at any point in the chain.
Renewals are buyouts by another name. A funder offering more money at month four is usually netting out the current balance at full remaining purchased amount and writing a new, larger contract over it.
Where this one catches people
Net cash to merchant is the only figure worth looking at, and it is the one least often quoted. An offer of 150,000 that buys out 95,000 at full purchased amount and charges fees puts perhaps 45,000 in the account while the payback obligation rises sharply. Always ask for two numbers in writing: the wire amount you will receive, and the total you will repay including everything.
Worked through
Current advance: 140,000 purchased amount, 95,000 unpaid, no early payoff discount. New offer: 150,000 purchase price at 1.35, so 202,500 to repay. The 95,000 payoff and 6,000 of fees come out, leaving 49,000 net cash. The merchant now owes 202,500 against 49,000 of new money plus the release of a 95,000 obligation.
Figures in the example are illustrative. They show the arithmetic, not a quote — what any one lender would charge is on that lender's page, where it is published at all.
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Buyout — common questions
What does buyout mean?
A new funder paying off an existing advance or loan, either fully or partially, and folding that payoff into the new balance.
Where does buyout catch people out?
Net cash to merchant is the only figure worth looking at, and it is the one least often quoted. An offer of 150,000 that buys out 95,000 at full purchased amount and charges fees puts perhaps 45,000 in the account while the payback obligation rises sharply. Always ask for two numbers in writing: the wire amount you will receive, and the total you will repay including everything.
Is buyout the same as an interest rate?
Buyout is defined above; if you are comparing it against a rate, check whether the two measures share a time dimension before you put them side by side.
Which products does buyout apply to?
Merchant Cash Advance, Working Capital, Term Loan, MCA Reverse Consolidation.
Is there a worked example of buyout?
Yes, on this page, and it is labelled illustrative. It shows the arithmetic, not a quote from any lender.
What else should I read alongside buyout?
Amount funded, Consolidation, Double dipping, Payoff letter, Renewal.
Has this definition been checked?
Not yet. This entry is drafted and live, and the notice at the top says so. Confirm anything you are about to act on.
Is this legal advice?
No. It is a definition. What a clause does in your contract, in your state, is a question for a lawyer licensed where you are.
Can I suggest a term?
Yes — [email protected]. The glossary grows from what people are actually shown in contracts.