# How does the 25 percent test for the SBA prepayment fee work?

**Short answer:** The fee applies when voluntary prepayments in one of the first three 12-month periods exceed 25% of the highest principal balance. The loan must run 15 years or more, under 13 CFR § 120.223(a).

Canonical page: https://www.sbaexpress.loans/answers/sba-prepayment-fee-25-percent-test/
Last checked: 2026-11-08

13 CFR § 120.223 tests each of the first three 12-month periods after first disbursement.

## What counts

A prepayment is a payment of principal above what the amortization schedule requires. Scheduled payments do not count. Several prepayments in the same period are added together.

## What the fee is measured on

Once the total in a period passes 25%, the fee applies to all prepayments made in that period, not just the excess. The rates are 5%, 3% and 1% of the prepaid amount in years one, two and three.

## Example on a $1,000,000, 25-year loan

- Prepay $250,000 in the first 12 months. That is exactly 25%, so the regulation's test is not met.
- Prepay $300,000 in the first 12 months. That is 30%, so the fee is 5% of $300,000, or $15,000.
- Prepay $300,000 in the third 12 months, when the highest balance is $900,000. That is over 25%, so the fee is 1% of $300,000, or $3,000.

## Wording differs across SBA documents

SBA's lender page says 25% or more of the outstanding balance. The SOP's sample Note language says more than 25% of the outstanding principal balance. The regulation says more than 25 percent of the highest outstanding principal balance. Read your Note and ask your lender which measure it will use.

## Sources

- [13 CFR § 120.223, Subsidy recoupment fee](https://www.ecfr.gov/current/title-13/section-120.223)
- [SOP 50 10 8.1, Sec. B, Ch. 6, Para. D.2, Subsidy Recoupment Fee language (about pp. 209-210)](https://legacy.sba.gov/sites/default/files/2026-10/SOP%2050%2010%208.1%20Technical%20Policy%20Updates%20effective%20%2010.1.2026.docx)
- [sba.gov/sba-lenders, Prepayment penalties (read November 8, 2026)](https://www.sba.gov/sba-lenders)