For SBA lenders
Short answer
A prepayment penalty is applied if an SBA 7(a) loan with a term of 15 years or more is voluntarily prepaid by more than 25% of the outstanding balance during the first three years.
The SBA imposes a prepayment penalty to partially compensate the agency for lost revenue from the guaranty fee when a long-term loan is repaid early. The penalty is tiered: 5% in year 1, 3% in year 2, and 1% in year 3, based on the amount prepaid in excess of 25%.
A $1,000,000 SBA 7(a) loan with a 25-year term is fully repaid in month 18 (year 2). The borrower would incur a 3% penalty on 75% of the original loan balance ($750,000), totaling $22,500.
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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