# Prepayment penalty

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

[SBA 7(a)](https://searchspheresource.com/glossary/sba-7a) 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 is owed only when more than 25% of the loan is prepaid in one of those years, and the lender may charge none of its own. It shapes refinancing and early-exit math, and because it only applies to longer-term loans, the [amortization](https://searchspheresource.com/glossary/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.

Source: https://searchspheresource.com/glossary/prepayment-penalty
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