Glossary · The loan itself
Prepayment penalty
In short
A prepayment penalty is a fee charged if you pay off your SBA 7(a) loan early. This protects the lender from losing interest income if you refinance or sell the business sooner than expected.
What it means in a deal
For SBA 7(a) loans over $50,000 with terms of 15 years or more, a prepayment penalty applies if you pay off 25% or more of the outstanding principal during the first three years. The penalty decreases over these three years. Factor this into any future plans to sell or refinance, as it can be a significant cost.
Official sources
13 CFR Part 120 — Business Loans
Office of the Federal Register · Federal regulation
SOP 50 10 — Lender and Development Company Loan Programs
U.S. Small Business Administration · SBA Standard Operating Procedure
Last checked 2026-06-15. Official sources control — verify before relying on any rule for a live deal.
Related terms
Common questions about Prepayment penalty
- What triggers the application of the SBA 7(a) loan prepayment penalty?
- Are there specific loan sizes for which the prepayment penalty does not apply?
- Will I pay a prepayment penalty if I repay my SBA 7(a) loan early?
- What is the maximum prepayment penalty that can apply to an SBA 7(a) loan?
- Under what specific conditions does the SBA impose a prepayment penalty on 7(a) loans?
- Does an SBA 7(a) loan have a prepayment penalty if I pay it back early?
Defined by CapBench SBA Intelligence — plain-English definitions for business buyers, lenders, advisors, and AI agents, grounded in public SBA rules and records. Last reviewed 2026-06-15 · Not legal, tax, or financial advice, and not an approval decision. Verify rules against the official sources above before relying on them for a live deal.
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