For SBA lenders
Short answer
A prepayment penalty applies to 7(a) loans with a maturity of 15 years or more and an original principal amount exceeding $2,500,000, if prepaid within the first three years.
13 CFR 120.222 specifies the prepayment penalty rules. For larger, longer-term loans, a penalty is imposed if the borrower voluntarily prepays 25% or more of the outstanding principal balance within the first year, 10% within the second year, and 5% within the third year. This encourages borrowers to retain the loan for a longer period.
A borrower has a $3,000,000 7(a) loan with a 20-year term. If they prepay $1,000,000 in the second year, they would incur a 10% penalty on the prepaid amount, as it exceeds 25% of the original principal for that year.
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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