Exit Fee
An exit fee on a business loan is a finance charge that a borrower must pay when they pay off a loan early or when they exit the loan agreement.
Exit fees protect lenders from the financial impacts of early loan repayment, such as lost interest income that they would have earned over the full loan term and other costs associated with early termination of the loan agreement.
The fee can be a flat dollar amount or a percentage of the remaining loan balance at the time of repayment. The specific terms regarding the exit fee, including how it is calculated and when it applies, should be clearly outlined in the loan agreement.
Exit fees can sometimes be negotiated to minimize borrowing costs, depending on the borrower’s relationship with the lender and the competitiveness of the loan market.
It is crucial for borrowers to thoroughly review the loan agreement to understand the implications of exit fees. These fees can significantly impact the overall cost of borrowing, especially if the borrower anticipates paying off the loan early.
Financial Glossary
Use Lighter Capital's glossary to understand common terms used in finance and investing, so you can build financial literacy and make informed decisions for your startup.
Exit Fee
An exit fee on a business loan is a finance charge that a borrower must pay when they pay off a loan early or when they exit the loan agreement.
Exit fees protect lenders from the financial impacts of early loan repayment, such as lost interest income that they would have earned over the full loan term and other costs associated with early termination of the loan agreement.
The fee can be a flat dollar amount or a percentage of the remaining loan balance at the time of repayment. The specific terms regarding the exit fee, including how it is calculated and when it applies, should be clearly outlined in the loan agreement.
Exit fees can sometimes be negotiated to minimize borrowing costs, depending on the borrower’s relationship with the lender and the competitiveness of the loan market.
It is crucial for borrowers to thoroughly review the loan agreement to understand the implications of exit fees. These fees can significantly impact the overall cost of borrowing, especially if the borrower anticipates paying off the loan early.
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