How is an SBA 7(a) loan amortized?
Short answer
The lender uses a schedule that fits the loan, and the loan must be repaid by maturity. SOP 50 10 8.1, Appendix 18 says fixed-rate payments must fully amortize, and variable-rate loans are typically re-amortized at each rate change.
SOP 50 10 8.1, Appendix 18, AmortizationPaying a loan down on a schedule, so each payment covers interest and part of the balance. Full definition (about p. 399) tells the lender to use a schedule appropriate for the type of loan. 13 CFR § 120.214(e) is the underlying rule.
Fixed and variable rates
- A fixed-rate loan must use a payment that fully amortizes the loan by maturity.
- A variable-rate loan is typically re-amortized at each rate adjustment, so it still pays off by maturity.
Matching payments to cash flow
Appendix 18 says the schedule may be adjusted to meet the business's cash flow needs. 13 CFR § 120.214(e) allows certain other amortization methods with SBA's prior approval, except balloon payments.
What a lender cannot charge for
A lender may not charge a fee for changing the installment after a deferment. It also may not charge one to keep the loan on track to pay off by maturity (Section A, Chapter 4, Para. C.2.b, about p. 68).
Payment order on a sold loan
On a loan sold on the Secondary Market, each payment goes first to accrued interest. It then brings principal current, covers late fees and reduces principal (Section B, Chapter 6, Para. D.2, about p. 209).
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