SBA 7(a) Q&A
Short answer
For SBA 7(a) loans exceeding $1,000,000, a prepayment penalty applies only if the loan is repaid within the first three years, and it's calculated on the outstanding principal balance.
If an SBA 7(a) loan has an original principal balance exceeding $500,000 (note: the question states $1,000,000, so it applies), a prepayment penalty can be assessed if the loan is fully repaid within the first three years. The penalty decreases over these three years: 5% in year 1, 3% in year 2, and 1% in year 3, calculated on the outstanding principal balance.
If you have a $1,200,000 SBA 7(a) loan and decide to prepay the remaining $900,000 balance at the end of year 2, the prepayment penalty would be 3% of $900,000, totaling $27,000.
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 2026-06-14. Official sources control — verify before relying on any rule for a live deal.
Last reviewed 2026-06-14 · SBA sources checked through 2026-06-14. 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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