In this article, you will learn about SBA 7a prepayment penalties.
Here’s how it works.
For SBA 7a loans with a maturity of 15 years or more, prepayment penalties are applied in the following circumstances:
- The borrower makes a voluntary prepayment equal to or greater than 25 percent of the remaining balance on the loan.
- After the date of the initial distribution of the loan proceeds, the prepayment must be completed within the first three years after that date.
The following is an example of the prepayment penalty fee:
- During the first year after disbursement, five percent of the amount of the prepayment.
- During the second year after disbursement, three percent of the amount of the prepayment.
- During the third year after disbursement, one percent of the amount of the prepayment.
Note that after the third year of loan disbursement, any prepayment penalties cease. This is in contrast to the majority of other types of loans.
In addition, the amount that you are charged is only based on the prepayment amount, not the total amount that was borrowed.
Finally, it is imperative that you keep in mind that if the term of your loan is less than 15 years, your lender is legally prohibited from assessing any prepayment penalties at all.
If you have any questions about SBA 7a loans in general, or about prepayment penalties for SBA 7a loans, please consult with an experienced commercial loan advisor today.
Rationale for Prepayment Fees on SBA 7a Loans
Prepayment penalties are fees that are designed to reimburse a lender in the event that a borrower decides to pay off their loan early. SBA 7a loans, like many other types of loans, do contain prepayment penalties.
When a lender issues a loan, they do so with the expectation of receiving interest payments for a certain number of years. Prepayment penalties offer the lender some degree of financial protection because of this dependency.