TL;DR: An exit fee is a payment due to a lender when a loan is repaid, refinanced, or reaches the end of its term. It is one way lenders earn a return alongside interest, and it is common in venture debt. Sometimes called a back-end fee, success fee, or final payment.
An exit fee is a charge triggered by the conclusion of a loan, typically calculated as a percentage of the original or outstanding principal. Unlike interest, which accrues over the life of the facility, an exit fee is paid once, at or near maturity, when the borrower repays, refinances, or is acquired.
Lenders use exit fees to shape the overall return on a facility without raising the headline interest rate. For the borrower, this lowers monthly cash outflow during the term in exchange for a defined payment at the end.
The true cost of a venture debt facility is the combination of interest, any setup or commitment fees, warrant coverage or success fees, and any exit fee. Two facilities with the same interest rate can have very different all-in costs once back-end fees are included. The right way to compare offers is on total cost of capital relative to the dilution and flexibility retained, not on interest rate alone.
Flow Capital structures modest equity upside into its facilities in the form of warrants or success fees rather than relying on high interest alone. This keeps monthly servicing manageable for a growing company while aligning the lender's return with the company's success. Exact terms are set deal by deal.
When is an exit fee paid? Typically at repayment, refinancing, or a liquidity event such as an acquisition. The triggering events are defined in the loan agreement.
How is an exit fee different from a prepayment penalty? A prepayment penalty specifically discourages early repayment. An exit fee is generally due regardless of timing, though some agreements blend the two. Read the term sheet to see which applies.
Related terms: Warrant · Bullet Loan · Term Sheet · Venture Debt
