Rates, fees and comparisons
SBA prepayment penalty: when the 5-3-1 fee applies and how much it is
SBA charges a fee on large early repayments of long 7(a) loans, and only in the first three years. Type your loan and the amount you plan to repay.
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SBA prepayment penalty (subsidy recoupment fee)
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Prepayment fee
$12,000
| Applies to terms of | 15 years or more |
| Free threshold that year | $250,000 (25%) |
| Rate in that year | 3% of the amount prepaid |
| Verdict | fee due |
SOP 50 10 8.1: the fee is on the whole amount prepaid in that year once it exceeds 25% of the highest principal balance in that 12-month period. A 7(a) lender may not charge a prepayment fee of its own.
SBA’s prepayment penalty on 7(a) loans is called the subsidy recoupment fee, and it is set by 13 CFR 120.223. It applies only when three conditions are all met: the loan has a maturity of 15 years or more; the borrower repays principal ahead of schedule during one of the first three 12-month periods after the first disbursement; and the prepayments in that period exceed 25% of the highest principal balance in it. The fee is then 5% of all prepayments made in the first year, 3% in the second and 1% in the third. From the fourth year there is no SBA fee. Loans shorter than 15 years, the usual case for equipment and working capital, never pay it. Repaying $400,000 in the second year on a $1,000,000, 25-year loan costs $12,000; repaying $250,000 costs nothing, because it stays within 25%. Selling the business or refinancing in those years counts as a prepayment.
Fee notices read and loan file counted by Radif Partners · Editorial policy · Method and sources
The fee on a $1,000,000, 25-year loan
| Prepaid in the period | Year 1 | Year 2 | Year 3 | Year 4+ |
|---|---|---|---|---|
| $100,000 | $0 | $0 | $0 | $0 |
| $250,000 | $0 | $0 | $0 | $0 |
| $300,000 | $15,000 | $9,000 | $3,000 | $0 |
| $500,000 | $25,000 | $15,000 | $5,000 | $0 |
| $1,000,000 | $50,000 | $30,000 | $10,000 | $0 |
The rule has a cliff. Once the total for the period exceeds the threshold, the fee is charged on everything prepaid in that period, not only on the part above 25%: $250,000 costs nothing in year one, $300,000 costs $15,000.
Who it actually concerns
Most SBA borrowers are outside the rule. The median 7(a) term in FY 2026 was 10 years, and only 13.0% of loans ran 15 years or more. Those are the building loans, where an early sale, a refinance into a 504 loan or a conventional mortgage, or a large cash windfall can trigger the fee. The 504 debenture has prepayment terms of its own, set in the debenture and not by this rule.
Two details catch borrowers. A loan made for less than 15 years becomes subject to the fee if its maturity is extended to 15 years or more within the first 36 months, and prepayments made before the extension count. And SBA does not treat a prepayment caused by the death of the borrower as voluntary, so no fee is due in that case.
A variable-rate loan that may be repaid early is a reason to keep the term under 15 years when the use of proceeds allows it. A loan that is mostly real estate needs the long term to keep payments affordable, so the fee is usually the price of that choice; plan any sale or refinance for the fourth year where you can.
Before refinancing in the first three years, set the fee against what the new loan saves. A borrower moving $800,000 to a loan one point cheaper saves about $8,000 of interest a year; at 3% in year two the SBA fee is $24,000, recovered in three years. The comparison calculator helps with the rest of that decision.