Prepayment penalty

Definition

A fee for repaying early, protecting the interest the lender expected.

Why It Matters

SBA 7(a) loans with terms of fifteen years or more carry a declining penalty of 5%, then 3%, then 1% of the prepaid amount across the first three years. It shapes refinancing and early-exit math, and because it only applies to longer-term loans, the amortization you choose at closing decides whether you ever face it.

In numbers: An SBA 7(a) loan of 15 years or longer carries a declining penalty on early payoff: 5% in year one, 3% in year two, 1% in year three, then none.