{"ok":true,"canonical_url":"https://dealroom.so/glossary/tiered-prepayment-penalty","api_url":"https://dealroom.so/api/public/glossary/tiered-prepayment-penalty","data_freshness":{"sba_records_through":"2026-05-31","fdic_records_through":"2026-03-31","dealroom_last_updated":"2026-06-15","timezone":"America/Chicago"},"source_summary":["Public SBA 7(a) loan records","FDIC institution data","DealRoom lender and franchise enrichment"],"term":{"slug":"tiered-prepayment-penalty","term":"Tiered prepayment penalty","group":"The loan itself","definition":"A fee charged by the lender if you pay off a substantial portion of your loan early, typically within the first few years. It's designed to compensate the lender for lost interest income.","what_it_means":"For 7(a) loans with a maturity of 15 years or more, if you prepay 25% or more of the outstanding principal balance within the first three years, the SBA requires a penalty. The penalty is tiered: 5% in year 1, 3% in year 2, and 1% in year 3. Factor this into any plans for early refinancing or sale.","url":"https://dealroom.so/glossary/tiered-prepayment-penalty","official_sources":[{"slug":"13-cfr-part-120","title":"13 CFR Part 120 — Business Loans","official_url":"https://www.ecfr.gov/current/title-13/chapter-I/part-120","official_label":"View on eCFR","authority_tier":1,"publisher":"Office of the Federal Register","source_guide_url":"https://dealroom.so/sba-7a/sources/13-cfr-part-120"},{"slug":"sop-50-10","title":"SOP 50 10 — Lender and Development Company Loan Programs","official_url":"https://www.sba.gov/document/sop-50-10-lender-development-company-loan-programs","official_label":"View on SBA.gov","authority_tier":2,"publisher":"U.S. Small Business Administration","source_guide_url":"https://dealroom.so/sba-7a/sources/sop-50-10"}],"related":[{"slug":"prepayment-penalty","term":"Prepayment penalty","url":"https://dealroom.so/glossary/prepayment-penalty"},{"slug":"term-maturity","term":"Term / maturity","url":"https://dealroom.so/glossary/term-maturity"},{"slug":"7a-loan","term":"7(a) loan","url":"https://dealroom.so/glossary/7a-loan"},{"slug":"refinancing","term":"Refinancing","url":"https://dealroom.so/glossary/refinancing"}],"related_questions":[{"question":"What triggers the application of the SBA 7(a) loan prepayment penalty?","url":"https://dealroom.so/for-lenders/questions/what-triggers-the-application-of-the-sba-7-a-loan-prepayment-penalty"},{"question":"Are there specific loan sizes for which the prepayment penalty does not apply?","url":"https://dealroom.so/sba-7a/questions/are-there-specific-loan-sizes-for-which-the-prepayment-penalty-does-not-apply"},{"question":"Will I pay a prepayment penalty if I repay my SBA 7(a) loan early?","url":"https://dealroom.so/sba-7a/questions/will-i-pay-a-prepayment-penalty-if-i-repay-my-sba-7-a-loan-early"},{"question":"What is the maximum prepayment penalty that can apply to an SBA 7(a) loan?","url":"https://dealroom.so/sba-7a/questions/what-is-the-maximum-prepayment-penalty-that-can-apply-to-an-sba-7-a-loan"},{"question":"Under what specific conditions does the SBA impose a prepayment penalty on 7(a) loans?","url":"https://dealroom.so/sba-7a/questions/under-what-specific-conditions-does-the-sba-impose-a-prepayment-penalty-on-7-a-loans"},{"question":"Does an SBA 7(a) loan have a prepayment penalty if I pay it back early?","url":"https://dealroom.so/sba-loans/basics/does-an-sba-7-a-loan-have-a-prepayment-penalty-if-i-pay-it-back-early"}]},"caveats":["Definitions represent DealRoom's plain-English interpretation for buyers; verify regulatory terms against the official SBA and eCFR sources listed.","Not legal, tax, or financial advice, and not an SBA eligibility determination."],"citation":{"label":"DealRoom.so Glossary — Tiered prepayment penalty","url":"https://dealroom.so/glossary/tiered-prepayment-penalty","source_type":"DealRoom Data"}}