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Yield Spread Premium YSP
Also called YSP, rate markup, back-end compensation, par-plus pricing.
Compensation paid to a broker for delivering a loan at a higher rate than the lender would have accepted, funded out of the extra interest the borrower pays over the life of the loan.
Drafted with AI assistance. Not yet independently checked. Nobody has verified the claims on this page against a source, so treat the figures and legal points as a starting point rather than as settled, and confirm anything you are about to act on. How we check things.
What it means
A lender publishes a rate sheet. Par is the rate at which no premium moves in either direction. Write the loan above par and the lender pays the broker a percentage of the loan amount, because a higher-yielding loan is worth more to whoever holds it. Write it below par and the borrower pays discount points to buy the rate down.
The borrower sees a rate. The rate sheet stays on the broker's side of the table.
In residential mortgage, and why that is different
Yield spread premium is a mortgage term, and in residential lending compensation to a loan originator based on the terms of the loan was restricted by rule following Dodd-Frank — see the loan originator compensation provisions at 12 CFR 1026.36(d). That is consumer mortgage regulation. It does not reach commercial small-business lending.
In small-business finance
The same economics operate continuously under different names. A funder issues a buy rate; the broker presents a higher rate or factor; the difference is paid as commission, often on a published grid tying compensation to how far above buy the deal is written. On equipment, the equivalent is the difference between the lessor's rate and the rate quoted, or a rate factor marked up in the payment. Nothing about this is hidden from the funder — the grid is the funder's. It is hidden from you.
Where this one catches people
The compensation moves in the opposite direction to your interest, and no document on your side of the transaction identifies it. The worse your price, the better the broker's day, and there is no line item to point at because the money never appears as a fee — it lives inside the rate.
There is no Reg Z equivalent coming to help in the commercial market, so the only counters are procedural. Ask for the funder's approval as issued, unedited, showing the buy rate or the lessor's rate factor. Ask what the broker is being paid on the deal, in dollars, in writing. And source at least one competing offer independently, directly from a funder, so you have a second price that nobody in the first conversation controls.
A broker who hands over the funder's approval without editing it is doing normal business and is worth keeping. One who will not is answering the question.
Worked through
Illustrative only. A $250,000 amortising term loan over 36 months.
The funder's par rate is 12 percent. Payment at 12 percent: $8,303.58 a month, $298,929 repaid in total, $48,929 of interest.
The broker writes it at 14 percent and is paid 2 points of back-end compensation — $5,000.
Payment at 14 percent: $8,544.41 a month, $307,599 repaid in total, $57,599 of interest.
The borrower pays $8,670 more in interest so that the broker can be paid $5,000. Nothing on the note, the disclosure or the closing statement distinguishes the 12 percent the funder wanted from the 2 percent that exists to pay for the introduction.
Figures in the example are illustrative. They show the arithmetic, not a quote — what any one lender would charge is on that lender's page, where it is published at all.
Where you will meet this term
Read next
Yield Spread Premium — common questions
What does yield spread premium mean?
Compensation paid to a broker for delivering a loan at a higher rate than the lender would have accepted, funded out of the extra interest the borrower pays over the life of the loan.
Where does yield spread premium catch people out?
The compensation moves in the opposite direction to your interest, and no document on your side of the transaction identifies it. The worse your price, the better the broker's day, and there is no line item to point at because the money never appears as a fee — it lives inside the rate.
Is yield spread premium the same as an interest rate?
Yield Spread Premium is defined above; if you are comparing it against a rate, check whether the two measures share a time dimension before you put them side by side.
Which products does yield spread premium apply to?
Working Capital, Term Loan, Business Line of Credit, Equipment Financing.
Is there a worked example of yield spread premium?
Yes, on this page, and it is labelled illustrative. It shows the arithmetic, not a quote from any lender.
What else should I read alongside yield spread premium?
Broker, Broker Fee, Buy rate, Commission, ISO agreement.
Has this definition been checked?
Not yet. This entry is drafted and live, and the notice at the top says so. Confirm anything you are about to act on.
Is this legal advice?
No. It is a definition. What a clause does in your contract, in your state, is a question for a lawyer licensed where you are.
Can I suggest a term?
Yes — [email protected]. The glossary grows from what people are actually shown in contracts.