The Payoff Letter on a Business Loan: Per-Diem Interest and the Good-Through-Date Trap

When you decide to pay off a business loan early — selling the company, refinancing into cheaper money, or just clearing the debt — the first thing you need is not your online account balance. It is a payoff letter from the lender. And the number on it will surprise most borrowers, because it is engineered to capture every dollar you still owe as of one precise day, not the tidy figure you saw on last month’s statement.

This post walks through what a payoff statement actually contains, why per-diem interest means the amount changes every single day, how the “good-through” date works, and the fees that quietly inflate the total. Read the letter the way the lender wrote it, and you avoid wiring the wrong amount and leaving a stray balance that keeps accruing — or keeps your lien on file.

Payoff balance vs. statement balance: they are not the same number

Your monthly statement shows the principal balance as of the statement’s closing date. A payoff figure is a different calculation entirely. The CFPB describes a payoff amount as the full amount that must be paid to satisfy the loan’s terms, and notes it is often more than the current balance because it includes interest you owe up to the payoff date.

On a business loan, the payoff letter typically rolls together:

• Unpaid principal — what you still owe on the amount borrowed.
• Accrued interest — interest that has built up since your last payment posted, calculated day by day.
• Per-diem interest — a daily interest figure that keeps running until the lender actually receives the money.
• Unpaid fees — late charges, returned-payment fees, inspection or collateral fees, and sometimes a payoff or reconveyance fee for preparing the statement and releasing the lien.
• A prepayment charge, if your note carries one.

Miss any of these and you underpay. Underpay by even a few dollars and the loan is technically not satisfied — which can delay your lien release, hold up a refinance, or keep the clock running on interest.

Per-diem interest: why the number moves every day

Most business term loans and lines accrue interest on a simple daily basis. The lender takes your outstanding principal, multiplies it by your annual interest rate, and divides by a day-count convention — commonly 365 days (some commercial notes use a 360-day year, which slightly raises the daily figure). The result is the per diem: the dollars of interest that pile on for each day the loan stays open.

Per diem = (outstanding principal × annual rate) ÷ day-count. A $200,000 balance at an 8% rate on a 365-day basis accrues roughly $43.84 in interest per day — so a payoff that lands five days late costs about $219 more than quoted.

That is the whole reason a payoff quote cannot be a single fixed number. The lender does not know the exact day your funds will arrive, so the letter states an amount good through a chosen date and then tells you the per diem to add for every day after that.

The “good-through” date is a deadline, not a suggestion

Every payoff letter carries a good-through date (sometimes called the payoff expiration or “valid through” date). The quoted total is only correct if the lender has the money in hand on or before that day. Send it after, and your payment is short by the accrued per diem — and you are back to an open loan with a small, growing balance.

Two practical traps hide here:

• Wire timing. ACH and check payments can take days to clear and post. If the good-through date is Friday and your wire arrives Monday, you owe three extra days of per diem. When precision matters, ask whether the lender accepts same-day wires and what the cutoff time is.
• Weekends and holidays. A good-through date that falls on a day the bank does not process payments can push your effective payoff to the next business day. Build in a buffer and, if you can, request a payoff good through a date a few days out so a short delay does not leave you short.

The safe move is to pay the amount good through a date you are confident you can beat, and to confirm with the lender exactly how much to add per day if you need a cushion. Overpaying slightly is recoverable — the lender refunds the difference. Underpaying leaves the loan technically alive.

Prepayment penalties and other fees baked into the figure

If your note includes a prepayment penalty, the payoff letter is where it shows up. On conventional business loans these can be structured as a percentage of the balance, a declining “step-down” schedule, or yield-maintenance language. On long-term SBA 7(a) loans, there is a specific prepayment charge — the subsidy recoupment fee — that applies when you pay off a large share of a loan with a maturity of 15 years or more during its early years. Know before you request the payoff whether your loan carries one, so the number does not blindside you.

Watch also for how interest was calculated over the life of the loan. If your loan used a precomputed method such as the Rule of 78s rather than simple interest, early payoff may not save you as much interest as you expect, because the lender front-loaded the interest into early payments. Read your note’s interest clause before assuming an early payoff is a clean win.

Getting the lien released after you pay

Paying the loan is only half the job. If the lender filed a UCC-1 financing statement or recorded a lien against real estate, that lien stays on record until it is formally released — and an un-terminated lien can block your next loan or a sale of the business.

Under the Uniform Commercial Code, once there is no outstanding secured obligation, a secured party is generally required to send or file a termination statement (a UCC-3) after an authenticated demand from the debtor. The UCC also gives you the right to request an accounting of the unpaid balance, which is useful if a lender’s payoff figure looks off or you want it documented. After payoff, confirm in writing that the lender will file the termination and release any recorded mortgage or deed of trust.

A clean payoff checklist

• Request the payoff in writing and ask for a good-through date that gives you a realistic buffer.
• Confirm the per-diem amount and the exact dollars to add per day beyond the good-through date.
• Ask whether a prepayment charge or payoff fee is included, and how it was calculated.
• Confirm the payment method and cutoff — wire instructions, posting time, accepted channels.
• Get written confirmation the lender will release the lien (file the UCC-3 termination and record any mortgage release).
• After payoff, verify the balance reads zero and request a paid-in-full letter.

The takeaway

A payoff letter is a snapshot that starts going stale the moment it is printed. The statement balance tells you roughly what you owe; the payoff letter tells you what it takes to be done — principal, accrued interest, per-diem to the day, fees, and any prepayment charge — and only through one specific date. Treat the good-through date as a hard deadline, know your per diem, and insist on a documented lien release. Do that, and the loan closes cleanly instead of leaving a few dollars and a stray UCC filing behind to haunt your next deal.

Important: MidBank is not a bank, a financial institution, or a financial advisor. We are an advocate and ISO affiliate that connects businesses to vetted third-party providers. This article is general information published on October 24, 2026, not legal, tax, or financial advice — rules and rates change, and your situation is specific to you. Confirm details with the primary sources linked above and with a qualified tax or legal professional before acting.