Is there a prepayment penalty on an SBA 7(a) loan?

Loans with a maturity under 15 years carry no SBA prepayment fee. A lender may not charge prepayment fees on any 7(a) loan (SOP 50 10 8.1, Section A, Chapter 4, Para. C.4, about p. 70).

The Subsidy Recoupment Fee

This fee goes to SBA. The lender does not keep it. The trigger under 13 CFR § 120.223(a) is:

• a maturity of 15 years or more and voluntary prepayments over 25% of the highest principal balance in one of the first three 12-month periods

The rates are 5%, 3% and 1% of the prepaid amount in years one, two and three.

Cases that need a closer look

• Extended loans. The fee can apply if a shorter loan is extended to 15 years or more during its first 36 months (Para. C.3).
• Refinancing. Appendix 14 says any applicable fee applies when another 7(a) lender refinances the loan.
• Death. SBA does not treat a prepayment resulting from death as voluntary.
• Other involuntary payments. The lender can ask SBA for a determination.
• SBA Express. The same test applies. Express lines cannot reach 15 years, so the fee can only reach a long-term Express loan.
• Revolving Manufacturers' Access to Revolving Credit (MARC) loans. These are exempt because they amortize over no more than 10 years (Appendix 17, Para. B.4).

Notice before paying off

Under SBA's Note language, you may prepay 20% or less at any time without notice. If you prepay more and the loan was sold, you must give written notice and pay accrued interest. A payment arriving less than 21 days after notice owes 21 days of interest, less interest already paid (Section B, Chapter 6, Para. D.2, about p. 209).