For SBA lenders
Short answer
Prepayment penalties apply to 7(a) loans with terms of 15 years or more that are paid off within the first three years, based on the outstanding principal balance.
SBA 7(a) loans with original maturities of 15 years or more are subject to a prepayment penalty if paid in full within the first three years. The penalty is calculated as a percentage of the outstanding principal balance: 5% in the first year, 3% in the second year, and 1% in the third year. This penalty compensates the SBA for the loss of its guaranty fee income.
A borrower has a $900,000 SBA 7(a) loan with a 10-year term. If they pay it off in year two, no prepayment penalty applies because the original term was less than 15 years. If the term was 15 years and they paid it off in year two with an outstanding balance of $800,000, the penalty would be 3% of $800,000, or $24,000.
Insider move
Lenders must accurately disclose prepayment penalties to borrowers and ensure proper calculation and collection if a loan is paid off early. Failure to do so could result in a repair to the SBA guaranty.
13 CFR Part 120 — Business Loans
Office of the Federal Register · Federal regulation
7(a) Loan Program — Terms, Conditions, and Eligibility
U.S. Small Business Administration · Official SBA source
SOP 50 10 - Lender and Development Company Loan Programs
Last checked 2026-06-13. Official sources control — verify before relying on any rule for a live deal.
Last reviewed 2026-06-13 · SBA sources checked through 2026-06-13. DealRoom analysis of public SBA 7(a) lending records (FY2020–present). Grounded in the current SBA rulebook; verify against the official sources above before relying on it for a live deal. Not legal, tax, or financial advice, and not an approval decision.
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