Do SBA 7(a) Loans Have Prepayment Penalties?

Like many kinds of loans, SBA 7(a) loans do have prepayment penalties, which are fees designed to compensate a lender should a borrower decide to pay off their loan early. Since lenders depend on getting interest payments for a specific number of years when they issue a loan, prepayment penalties provide them a degree of financial protection.

What are the Prepayment Penalties for SBA 7(a) Loans?

For SBA 7(a) loans, prepayment fees only apply when a borrower “voluntarily prepays 25% or more” of a loan’s outstanding balance on a loan 15 years or longer. In addition, the prepayment must also be made within 3 years after the initial loan disbursement. So, unlike many other kinds of loans, if you’re a borrower who decides to wait more than 3 years after first receiving funds to make a prepayment, you won’t face any fees. Plus, you’re only charged based on the prepayment amount, not the entire amount of the loan. And, it’s important to keep in mind that if your loan has a term of less than 15 years, your lender cannot charge prepayment fees at all.

So, for prepayment-eligible SBA 7(a) loans, prepayment penalties include:

  • Year 1: 5% of the total prepayment amount

  • Year 2: 3% of the total prepayment amount

  • Year 3: 1% of the total prepayment amount

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