A prepayment penalty is a fee charged to the borrower for making an early loan payoff. The fee compensates the lender for the interest lost when the borrower pays a loan off early.
Each lender decides whether to charge a prepayment penalty and if so, the amount. If there is a prepayment penalty, it must be disclosed and included in the loan documentation.
If you are considering paying off an existing business loan, first check to see if you have a prepayment clause.
If you are shopping for a new business loan, always check into prepayment penalties.