Question about SBA 7(a) prepayment penalties - am I missing something?

So I was reading through my loan docs for a small multifamily deal in Tampa, and I noticed the prepayment penalty on a 7(a) loan is way stiffer than I expected. Like 5% if you refi or sell in the first 3 years. But I always thought these loans were supposed to be borrower friendly compared to traditional CRE loans. I found this detail buried in the SBA SOP 50 10 7 on their website. Is this normal, or did I just get a raw deal? Anyone else run into this and find a way around it?

2 comments

2 Comments

wesleybutler9d ago

Yeah 5% is brutal. I got hit with almost the exact same thing on a 7(a) for a laundromat I bought near Orlando. The prepayment penalty was 4.8% if I sold or refi'd within the first two years. I didn't catch it until closing either. My banker said it's standard because the SBA guarantees the loan and they want to lock you in so they aren't stuck with early payoffs. No way around it unless you wait it out or pay the penalty.

kelly.keith9d ago

Laughs at myself here because I did the same thing with a 7(a) for a laundromat near Orlando and didnt read the fine print until after closing either @wesleybutler. My prepayment penalty was 4.8% too and I felt like a fool for not noticing sooner. Just gotta ride it out or eat the cost I guess.