Pricing
Exit fee
An exit fee is charged when the facility is repaid, including at maturity. Unlike call protection it is not avoided by waiting, which is why it is easy to miss when comparing offers.
Also called back-end fee · repayment fee · redemption fee · completion fee on exit
Call protection expires. An exit fee does not, which is the whole distinction and the one borrowers miss.
| Charge | When it applies |
|---|---|
| Non-call period | Early only, then lapses |
| Make-whole | Early only |
| Call protection ladder | Early only, steps to par |
| Exit fee | Any repayment |
Structural comparison of back-end charges. Individual facilities vary.
What it is and why it exists
An exit fee is a charge payable when the facility is repaid. It is expressed as a percentage of the amount repaid, or occasionally as a fixed sum, and it is settled out of the redemption payment.
Its purpose is the same as the rest of the fee stack on a fund facility: to lift the realised yield above the headline coupon. A fund underwrites a target return over an expected hold, and the coupon alone rarely delivers it. Original issue discount collects some of the return at the front, PIK collects some through accrual, and the exit fee collects some at the back.
That is why exit fees are common on private credit facilities and rare on bank term debt. A bank earning a margin on a loan it holds on balance sheet does not need to engineer the return in the same way.
The distinction that matters
Call protection and an exit fee are both back-end charges, and borrowers routinely treat them as the same thing. They are not, and the difference is the single most useful point on this page.
Call protection prices an early exit. It steps down, commonly 3% in year one, 2% in year two, 1% in year three, and then falls away to par. Wait long enough and it costs nothing. A non-call period and a make-whole behave the same way: both attach to leaving early.
An exit fee attaches to repayment itself. Repaying on the scheduled maturity date, having held the facility for its full term and complied with everything, still triggers it. There is no waiting it out.
So a borrower who reads a term sheet, sees call protection stepping to par after year three, and concludes the back end is free from year four has misread it if an exit fee also sits there.
Held to maturity, a bank facility owes nothing at the back end. A fund facility with an exit fee still does.
| Structure | Payable at maturity |
|---|---|
| Bank term facility | £0 |
| Fund, 1pt exit fee | £50k |
| Fund, exit fee + accrued PIK | £250k |
Illustrative on £5m repaid AT MATURITY, so no call protection applies. Exit fee shown at one point purely as an illustration; the guides publish no exit-fee band.
How it compounds at the back end
Exit fees rarely arrive alone, and the interaction is where the real number appears.
On a facility with a PIK element, the accrued interest has increased the outstanding balance, and an exit fee charged on the amount repaid is therefore charged on a larger sum than was advanced. The accrued PIK itself crystallises as cash at the same moment.
Where the repayment is early rather than at maturity, call protection stacks on top, and any unamortised original issue discount is written off. A borrower refinancing in year two can meet four separate charges in the same transaction: call protection, the exit fee, the crystallised PIK and the discount write-off.
Modelling the exit in the year you might realistically want to move, rather than at maturity, is the only way to see the total. It is a five-minute exercise and it regularly changes which offer is cheaper.
Where it shows up
Almost entirely at the fund end of the market. Debt funds, private credit lenders and some specialist lenders use exit fees as a standard part of the return construction. Clearing bank term facilities generally do not.
It also appears in specific product contexts regardless of lender type: bridging and short-term facilities frequently carry an exit fee, since the whole return has to be earned over a short hold, and some asset-backed and development facilities do the same.
The practical implication for a borrower comparing a bank offer with a fund offer is that the comparison is not margin against margin. It is the whole stack over the expected hold: margin plus base rate, arrangement fee, discount, commitment fee on undrawn amounts, and whatever falls due at the back.
The whole fee stack exists to lift the realised yield above the coupon. The exit fee is the last piece.
| Charge | When taken |
|---|---|
| Original issue discount | Drawdown |
| Arrangement fee | Drawdown |
| Margin | Quarterly |
| Call protection | Early exit only |
| Exit fee | On repayment |
Where each charge falls in the life of a facility. Market convention at £3-15m.
Reading it in a term sheet
Exit fees are not always labelled clearly, which is part of why they get missed.
It appears as a redemption premium, a back-end fee, a completion fee on exit, or a minimum return provision. That last construction is worth particular attention: rather than a stated percentage, some facilities specify that the lender must receive a defined multiple of money or minimum internal rate of return, with a top-up payable at exit if the coupon has not delivered it.
A minimum return provision is functionally an exit fee whose size is not known at signing, because it depends on how the facility performed. Where one appears, ask for the calculation to be worked through on the base case and on an early-exit case, so the range is visible before it is agreed.
What is negotiable
More than the percentage, and the structural asks are usually worth more.
The ask worth making is that the fee falls away or reduces if the facility runs to full term, which reframes it as a charge on early exit and aligns it with call protection. Ask for a carve-out on repayment from a genuine third-party sale, on the same reasoning that applies to call protection: the lender is not losing to a competitor. Ask whether the fee is charged on the original commitment or on the amount outstanding at repayment, which matters on an amortising facility where those diverge substantially.
And ask whether accrued PIK forms part of the base. A fee charged on a balance inflated by rolled-up interest is a fee on a fee, and where the point is raised it is often conceded.
The percentage itself moves least, because it is part of the return model. As with most fund pricing, the effective lever is a competitive process rather than argument.
Where it belongs in a comparison
Convert everything to pounds over the period you expect to hold the facility, then divide by that period to get an annual equivalent.
An exit fee of one point on £5m is £50,000. Held for five years that is about £10,000 a year, which is small. Held for two years, because the business grew and refinanced, it is £25,000 a year, which is not. The same fee is worth very different amounts depending on a variable that is unknown at signing.
That asymmetry is the argument for negotiating the structure rather than the rate. A fee that falls away at maturity costs nothing to a borrower who holds to term and everything to one who does not, and which of those you turn out to be is exactly the thing you cannot know when you sign.
Common questions
What is an exit fee on a loan?
A charge payable when the facility is repaid, expressed as a percentage of the amount repaid or occasionally as a fixed sum, and settled out of the redemption payment. It exists to lift the lender's realised yield above the headline coupon, alongside original issue discount at the front and PIK through the life of the loan.
Is an exit fee the same as call protection?
No, and this is the point borrowers most often miss. Call protection prices an early exit and steps down to par, commonly after year three, so waiting avoids it. An exit fee attaches to repayment itself, including repayment on the scheduled maturity date. There is no waiting it out.
Do I pay an exit fee if I hold the loan to maturity?
Usually yes, unless the drafting says otherwise. That is what distinguishes it from call protection. A borrower who sees call protection stepping to par after year three and concludes the back end is free from year four has misread the term sheet if an exit fee also sits there.
Do banks charge exit fees?
Generally not on term facilities. A bank earning a margin on a loan held on balance sheet does not need to engineer the return the way a fund does. Exit fees are standard at the fund end, and also appear on bridging, short-term and some asset-backed facilities where the whole return must be earned over a short hold.
What is a minimum return provision?
A construction that requires the lender to receive a defined multiple of money or minimum rate of return, with a top-up payable at exit if the coupon has not delivered it. It is functionally an exit fee whose size is unknown at signing. Where one appears, ask for the calculation worked through on both a base case and an early exit.
Is the exit fee charged on accrued PIK too?
It depends on the drafting, and it is worth asking. Where the fee is charged on the amount repaid and PIK has inflated that balance, you are paying a fee on rolled-up interest. Raising the point often gets accrued PIK excluded from the base.
Can I negotiate an exit fee away?
The percentage moves least because it is part of the return model, but the structure moves more. Ask for it to fall away if the facility runs to full term, for a carve-out on a genuine third-party sale, and for it to be charged on the amount outstanding rather than the original commitment, which matters on an amortising facility.
How much does an exit fee really cost?
It depends entirely on how long you hold the facility, which you cannot know at signing. One point on £5m is £50,000, which is about £10,000 a year over five years and £25,000 a year over two. That asymmetry is the argument for negotiating the structure rather than the rate.
The full treatment sits in the guide: private credit fees explained.
Related terms
This page explains a term as it is used in the UK lower-mid-market. It is general information, not advice on any particular facility. Terms vary between lenders and between deals, and the drafting in your own agreement governs.