"We can beat your rate by a full point. Just pay off the SBA loan." Twenty months after closing on a $1.2 million SBA 7(a) loan to buy and renovate the building her bakery runs in, Nia said yes. Then the payoff letter showed a line she'd never heard of: a $35,458 SBA fee, collected by her lender on SBA's behalf.
This is general information, not legal or financial advice. Confirm every rule against the current SOP and your lender before you sign anything.
The one tip
Read the prepayment clause before you sign, and put the date three years after your first disbursement on your calendar.
Under SBA SOP 50 10 8.1 (effective October 1, 2026) and 13 CFR 120.223, any 7(a) loan with a maturity of 15 years or longer carries a Subsidy Recoupment Fee. It kicks in when your voluntary prepayments in any one of the first three 12-month periods after first disbursement add up to more than 25% of the loan's highest outstanding principal balance in that period. Exactly 25% doesn't trigger it. "Prepay" means principal paid beyond what your amortization schedule requires.
The fee is a percentage of everything you prepaid in that period, not just the part over 25%:
| 12-Month period after first disbursement | Fee on all prepayments in that period |
|---|---|
| Months 1 to 12 | 5% |
| Months 13 to 24 | 3% |
| Months 25 to 36 | 1% |
| After month 36 | 0% |
You pay it to your lender, which collects it on behalf of SBA. The SBA note says so in plain words.
Who gets caught: real estate loans can run up to 25 years, and equipment loans up to 15 when the equipment's useful life supports it. So the founders buying a building or big machinery, the ones most likely to refinance or sell early, are the ones with this clause. A loan made under 15 years can get it too, if its maturity is stretched to 15 years or more within the first 36 months. In that case, prepayments made before the extension count as well.
Two things work in your favor. Your lender can't add its own prepayment penalty, because SOP 50 10 8.1 lists prepayment fees as prohibited lender fees. And SBA doesn't treat a payoff caused by a death as voluntary, so no fee applies there. If a lender believes some other prepayment wasn't voluntary, it can ask SBA for a determination.
One more clause in the note: if your loan has been sold on the secondary market and you prepay more than 20%, you have to give the lender written notice first. Pay less than 21 days after that notice and you owe interest for the rest of the 21 days. If you don't pay within 30 days of the notice, you have to send a new one.
Worked example
Nia's 7(a): $1,200,000, 25 years, at an assumed 10.5% fixed rate (an example rate, not a quote). The payment is about $11,330 a month. To keep the math simple, assume her first disbursement was at closing and her monthly payments started a month later.
Here's the balance at three points, using that assumed rate:
| After this many payments | Balance (approx.) |
|---|---|
| 12 | $1,189,544 |
| 20 | $1,181,941 |
| 36 | $1,165,049 |
Option A, refinance now (month 20, the second 12-month period). Paying off $1,181,941 is far more than 25%, so the fee is 3% of the full payoff: about $35,458, gone on day one of the new loan.
Option B, wait until after month 36. The fee is $0. She'd make 16 more SBA payments, but the new rate would have to save her about $2,200 a month just to make up $35,458 over those 16 months.
Option C, prepay part of it now. In months 13 to 24, the highest balance is about $1,189,544, and 25% of that is about $297,386. If a cash windfall comes in, she can put up to that much toward principal this period with no fee. She'd stop below $297,000 to leave a cushion, and then pay the rest off after month 36.
Same business, same lender. Timing alone is worth about $35,000.
Do this week
Find your note and look for the "Subsidy Recoupment Fee" language. If your loan's maturity is under 15 years, check whether anyone has proposed extending it.
Find your first disbursement date. Put three dates on your calendar: 12, 24 and 36 months after it.
Before you sign a refinance term sheet or a sale contract, ask your lender for a payoff quote that shows the SBA fee as its own line.
If you're getting a windfall, figure out 25% of your highest balance for the current 12-month period. Keep the period's total prepayments under that, with a cushion.
If your loan was sold on the secondary market and you plan to prepay more than 20%, send your lender written notice at least 21 days before the payoff.
If you haven't closed yet and expect to sell or refinance within three years, ask your lender how the maturity and structure would affect this fee. Be aware that a shorter term means a higher monthly payment.
Your lender can't stack its own prepayment penalty on top of this SBA fee. Ask them to show you the exact clause.
Sources: SBA SOP 50 10 8.1 (Section A, Ch. 4, Fees the Borrower Pays to SBA: Subsidy Recoupment Fee; Prohibited Fees: lender prepayment fees; Section B, Ch. 6, note prepayment language, 21-day notice and Subsidy Recoupment Fee language; Appendix 17, 7(a) Loan Maturity Requirements), download from https://www.sba.gov/document/sop-50-10-lender-development-company-loan-programs ; 13 CFR 120.223, https://www.ecfr.gov/current/title-13/section-120.223 ; SBA 7(a) loans overview, https://www.sba.gov/funding-programs/loans/7a-loans
Verified against SOP 50 10 8.1 text: October 11, 2026.