Why compute contracts ask for prepayments
Many GPU compute contracts require the customer to pay part of the contract value up front, commonly 15% to 25%, at signing. For the operator, the prepayment helps fund the hardware and shows the customer is committed. For the customer, it is often the least attractive part of the deal: an AI company may have to fund a large prepayment from equity it raised to hire engineers and build products.
The prepayment is then credited back to the customer over the term of the contract, reducing its monthly bills. Economically, the customer has lent the operator money and is being repaid in service. That makes the prepayment a financeable asset in its own right, and financing it can benefit both sides of the contract.
How prepayment financing works
In a prepayment financing, a lender funds part of the prepayment on the customer’s behalf. The operator still receives the full prepayment at signing, so the hardware is funded exactly as the contract intended. The customer pays only the balance from its own cash.
Over the term, the customer’s monthly bills are reduced by the prepayment credits, as they would have been anyway. The customer uses part of that saving to repay the financing. Because the credits are larger than the repayments when the financing covers only part of the prepayment, the customer’s monthly cost stays below what it would have paid without a prepayment at all.
An illustrative example
The example below shows a three-year contract with a 20% prepayment, where 60% of the prepayment is financed.
An illustrative example
| Contract value over 36 months | $200 million |
| Prepayment due at signing, 20% | $40 million |
| Financed portion of the prepayment, 60% | $24 million |
| Customer’s own cash at signing | $16 million |
| Operator receives at signing | $40 million |
| Prepayment credits against monthly bills | $1.11 million a month |
| Financing repayment over 36 months at an assumed 10% rate | $0.77 million a month |
| Credits as a multiple of repayments | 1.4x |
Illustrative only, with figures rounded. Not an offer or an indication of terms for any transaction.
In this example the customer commits $16 million of its own cash instead of $40 million, the operator receives the full $40 million, and the monthly credits cover the financing repayments with room to spare.
Who benefits
The customer keeps equity for its business rather than tying it up in a prepayment, which can make the difference between signing a larger contract and a smaller one. The operator receives the full prepayment on time, which reduces the equity or debt it needs to fund the hardware, and it can offer financing as part of its commercial proposal. The lender takes a short-dated exposure that is repaid from credits the contract already provides.
For operators, this can be a competitive tool. A customer choosing between providers will weigh the cash each one requires at signing, and an operator that can arrange prepayment financing alongside its contract lowers that barrier without cutting its price.
What the lender relies on
The financing depends on two parties. The first is the customer, which owes the repayments and whose credit is examined much as it would be for any lender. The second is the operator, because the credits only have value if the operator keeps delivering the capacity. If the operator failed, the customer would lose its credits and the lender would lose the source of repayment.
That second risk is addressed in the structure: the customer’s rights to its credits and to any refund of the prepayment are assigned to the lender, the contract gives the lenders step-in rights or the right to move the capacity to a replacement operator, and where the operator’s own deployment is financed, the two financings are coordinated so that neither undermines the other.
Where Park Street Global fits
Park Street Global structures prepayment financing alongside the financing of the deployment itself, so that the operator’s senior debt and the customer’s prepayment financing are designed together rather than negotiated separately. Operators can bring it to customers as part of the commercial offer, and customers can ask their provider whether it is available.
The compute financing page shows how prepayment financing sits alongside deployment capital, and the guide to making a compute contract financeable sets out the contract terms both financings rely on.
Common questions
Does the operator still receive the full prepayment?
Yes. The financing replaces part of the customer’s cash, not part of the prepayment. The operator receives the full amount the contract requires at signing.
Who borrows, the customer or the operator?
The customer. The financing funds part of the customer’s obligation, and the customer repays it from the credits it receives against its monthly bills.
What if the operator stops delivering capacity?
The credits would lose their value, so the structure assigns the customer’s rights to credits and any refund to the lender and gives the lenders the right to move the capacity to a replacement operator.
Can the whole prepayment be financed?
Usually not. Financing part of it leaves the customer with a real commitment and means the monthly credits exceed the repayments, which is what makes the financing comfortable for a lender.
Can this be combined with financing the GPUs?
Yes, and it works best that way. Designing the deployment financing and the prepayment financing together avoids conflicts between the two sets of lenders.