Glossary · The loan itself
Tiered prepayment penalty
In short
A fee charged by the lender if you pay off a substantial portion of your loan early, typically within the first few years. It's designed to compensate the lender for lost interest income.
What it means in a deal
For 7(a) loans with a maturity of 15 years or more, if you prepay 25% or more of the outstanding principal balance within the first three years, the SBA requires a penalty. The penalty is tiered: 5% in year 1, 3% in year 2, and 1% in year 3. Factor this into any plans for early refinancing or sale.
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 Tiered 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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