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When you’re negotiating venture debt, the interest rate is just the sticker on the windshield. The real cost is layered into the term sheet via fees.

And they’re not a small tax. They can enhance the deal economics quite a bit, and block you from doing stuff linked to raising, refinancing, or selling the company. Suddenly you’re hit with a big check like you broke a window on the way out.

The frameworks below are informed by Venture Debt Deals by Marshall Hawk, but everything not in quotes is my interpretation, not his words. It’s an excellent book for CFOs and private equity professionals looking to get the appropriate background on the venture debt industry.

Some of these fees are small but automatic (upfront), others are large but conditional (prepayment), and a few are sleeping but meaningful over time (backend).

Note that we’re not covering warrants in this post, which deserve their own breakdown.

Upfront fees (sometimes called commitment or facility fees) are the most universal fee in venture debt. Almost every lender charges one.

They’re typically expressed as a percentage of the total commitment — something like 0.25% to 0.50% for venture banks, and 0.50% to 2.0% for private credit — though they may appear as a flat dollar amount. If they do, it’s just cosmetic math.

These fees aren’t usually a major economic driver for banks. They’re more about getting paid for the work of putting the deal together. That’s why, in some cases, you can negotiate them down or away — especially if you agree to draw the full amount at close. That makes the lender happy because it starts the clock on the interest on period and guarantees something gets drawn.

TL;DR: nothing here is controversial. You either pay the upfront fee or you wiggle out of it. The real landmines show up / blow up later.

Also called diligence fees, these are collected by the banks before they take your deal to underwriting for official approval. It’s a way to pass along their expenses incurred as a part of the diligence process so if you back out they don’t have unpaid legal fees or other expenses if a company signs their term sheet but walks away before closing (which may take a month or two).

In many cases the GFD is the same amount as the upfront fee, and is waived / applied against the upfront fee when the deal goes through. Think of it as a security deposit where instead of being applied against your last month’s rent, it’s used to cover your upfront fees.

Prepayment fees are how lenders protect their upside.

The contractual life of a venture debt facility is often three to six years, but most companies won’t keep it outstanding that long. They’ll raise again. Or they’ll get acquired. Or they’ll go out of business.

This is the core dynamic Marshall calls out:

Venture banks tend to keep this somewhat simple. You’ll often see it expressed as a declining schedule tied to time:

Private credit firms are less forgiving. It’s more common to see some form of a make‑whole protection, where the lender is compensated for interest they expected to earn but won’t. They have investors who expect a certain IRR on their portfolio of deals, and don’t have the other services a bank can upsell a company on to cover their customer acquisition costs.

In the extreme case, you’ll see language like:

Ouch.

That structure has a name in the venture world:

This is the clause operators need to spend the most time on — not because it’s always bad, but because it directly impacts your ability to refinance, sell, or improve your cost of capital later. You can feel stuck.

A common and reasonable ask: prepayment fees are reduced or waived if you refinance with the same lender. That keeps incentives aligned and preserves optionality. The lender should be happy if you’re taking out a bigger loan.

Backend fees go by many names: final payment, deferred interest, end‑of‑term fee. You get the picture.

They’re typically expressed as a percentage of the amount actually drawn, not the total facility, and are due at maturity or upon prepayment.

For example:

If you draw $10M, you owe $300K at the end — regardless of whether you held the debt for three years or eighteen months.

Backend fees often exist so the lender can lower the stated interest rate while still hitting their target return. From a cash‑flow perspective, that can actually be helpful for the borrower. I’ll say it again - you might actually want this, as it’s like a PIK (payment in kind) form of interest but without the compounding.

They also create a natural renegotiation point. If you’re extending, upsizing, or restructuring the facility, backend fees are often on the table. Use it to your advantage rather than feeling like a bill is due.

The mistake most operators make isn’t agreeing to fees. Rather, it’s failing to think through when those fees get triggered, and what they might prevent you from doing later.

No matter what you think today, three to six years is a long time (it’s approximately 2 to 3 average CFO tenures if you measure it that way).

If I were negotiating a new facility, I’d ask myself:

And remember one truth that saves more money than any negotiation tactic:

There is no prepayment fee if you never draw the loan.

Check out Marshall’s book here.

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