---
title: "What Is Make-Whole?"
term: "Make-Whole"
description: "Make-whole is a prepayment penalty in debt that compensates the lender for lost interest if the borrower repays early, often calculated as the present value of remaining scheduled payments."
date: 2026-07-25T00:00:00.000Z
updated: 2026-07-25T00:00:00.000Z
topics: ["venture-capital"]
source: https://venturecapitaltracker.com/glossary/make-whole
---

# What Is Make-Whole?

> Make-whole is a prepayment penalty in debt that compensates the lender for lost interest if the borrower repays early, often calculated as the present value of remaining scheduled payments.

**Make-whole** is a contractual prepayment premium requiring the borrower to pay the lender additional amounts—typically the present value of foregone interest—if debt is retired before its scheduled maturity.

### How it works

Standard term loans pay interest over time. If a company repays early—because of a big equity round, acquisition, or refinancing—the lender loses future coupon income. A make-whole clause compensates that loss.

The formula varies by contract. A common approach discounts remaining interest payments to present value using a benchmark rate, sometimes with a floor (e.g., minimum one year of interest). Example: three years left on a loan at 10% with a make-whole might add hundreds of basis points of cost versus paying only outstanding principal.

Make-whole differs from simple prepayment fees (flat percentage) and from [call protection](/glossary/call-protection) periods that block early repayment entirely for an initial window.

### Why it matters

- **Founders:** Before signing venture debt, model exit and refinance scenarios with make-whole included. A successful acquisition can still leave less cash than expected.
- **Investors:** Enterprise value in an M&A process is not all equity proceeds—debt payoff plus make-whole sits ahead of common in the waterfall.

### Common mistake

Assuming paying off debt at par is always cheap when rates have fallen. Make-whole formulas can still penalize early exit because they protect the lender's original yield, not current market rates.

### Related ideas

See also [venture debt](/glossary/venture-debt), [call protection](/glossary/call-protection), [bullet maturity](/glossary/bullet-maturity), and [cash sweep](/glossary/cash-sweep).

## FAQ

### What is make-whole in simple terms?

If you pay off a loan before it is due, make-whole requires an extra payment so the lender earns the interest they would have received through maturity. It can turn an early payoff into a large lump sum.

### Why does make-whole matter?

Founders planning an acquisition or equity round that pays off debt must budget for make-whole on top of principal. Investors modeling exit proceeds need the same—net cash to equity shrinks when make-whole triggers.


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Source: https://venturecapitaltracker.com/glossary/make-whole