Specified Purchased Amount

How the number is set

The specified purchased amount is the figure your entire agreement is built around. It is the quantity of future receivables the provider bought, and once collection reaches that number the deal is over. Everything else in the contract — the holdback percentage, the payment frequency, the reconciliation terms — only governs how quickly you get there.

Specified purchased amount = amount funded × factor rate

Notice what this formula does not include: time. A term loan balance is principal plus interest that accumulates day by day, so the balance is a moving target that depends on when you pay. A purchased amount is a single fixed number chosen before a dollar has changed hands. This is the practical consequence of the fact that an advance is a purchase of receivables rather than a loan, and it is the source of nearly every surprise owners run into later.

Worked example

A specialty retailer is funded $40,000 at a 1.35 factor rate.

• Amount funded — $40,000
• Factor rate — 1.35
• Specified purchased amount — $54,000
• Total cost — $14,000, or 35% of the cash received

Follow the collection. At the point where the retailer has remitted $40,000 — exactly the cash that was deposited — the obligation is not close to finished. There is still $14,000 to collect, and every dollar of it is cost. Whether that last $14,000 takes two more months or six changes nothing about the amount, only about how expensive the deal turns out to be in annual terms: collected over about seven months in total, $14,000 on $40,000 works out to roughly 60% annualized; stretched over twelve months, roughly 35%.

Why paying early rarely helps

On a conventional loan, early payoff is a straightforward win. Interest stops accruing the day the balance hits zero, so a borrower who repays in month seven of a twenty-four month loan keeps seventeen months of interest. Owners frequently assume the same logic applies to an advance. It does not.

Because the purchased amount is fixed, paying it off in month three instead of month nine means you paid the identical $14,000 in a third of the time — which triples the annualized cost rather than reducing it. Some providers voluntarily offer an early payoff discount, often a partial rebate of the unearned portion of the cost. Many offer nothing. The discount is a business decision by the provider, not a feature of the product, so it has to be negotiated in writing before you sign. Run the numbers on a few scenarios with the MCA calculator before you accept an offer, and read how MCA rates and factor rates are priced so you know what is actually negotiable.

What to watch for

• Get a written payoff schedule. Ask what the payoff figure would be at 30, 60, and 90 days. If the answer is "the full remaining purchased amount," you now know early repayment saves you nothing and you should price the deal accordingly.
• Fees may sit outside the purchased amount. Origination, ACH, and administrative fees are often deducted from the funded amount or billed separately rather than folded into the purchased amount, so your true cost is higher than the simple difference between the two numbers.
• A renewal usually pays off the old purchased amount in full. If you renew at month five of an eight-month schedule, the uncollected balance is typically retired out of the new funding, meaning you pay the full original cost and then a fresh factor rate on top. Ask what portion of the new advance is going to clear the old one.
• Default clauses can accelerate the whole number. Some agreements provide that on a breach the entire uncollected purchased amount becomes immediately due, not just the portion earned so far. That is a term worth having a lawyer look at, particularly alongside any confession of judgment provision.

If the fixed-cost structure does not fit how your business generates cash, that is useful information rather than a dead end — it usually means an amortizing business loan is the better shape of capital for you.

Is the specified purchased amount the same as a loan balance?

No, and the difference matters. A loan balance is principal plus interest accrued to date, so it changes with time and shrinks faster if you pay ahead. A specified purchased amount is a fixed dollar figure set at signing. What changes as you remit is how much of it remains to be collected, not how large it is.

Can the specified purchased amount change after funding?

Under normal collection it does not. It can be revised in a written modification agreement, and some contracts provide that additional amounts — NSF charges, default fees, or collection costs — are added on top of it if something goes wrong. Ordinary reconciliation changes the pace of collection, not the amount itself.

How do I calculate the specified purchased amount from an offer?

Multiply the amount funded by the factor rate. $75,000 at 1.28 gives a $96,000 purchased amount and $21,000 of cost. If a term sheet gives you a factor rate without stating the purchased amount, do that multiplication yourself before you compare the offer to anything else.