The Small Business Administration (SBA) loan provides financial loans to small businesses and entrepreneurs at competitive rates. Small business owners and entrepreneurs can use this long-term, fixed-rate financing loan to purchase or repair real estate, equipment, machinery or other assets. Small business owners can also use the loans to rebuild, re-open, repair, enhance, or improve your small business.

There are three main types of SBA loans and they are:

  • SBA 504 loan: The SBA 504 loan program provides long-term, fixed rate financing of up to $5 million for major fixed assets that promote business growth and job creation.
    SBA 504 loans are available through Certified Development Companies (CDCs), which are SBA’s community-based partners who regulate nonprofits and promote economic development within their communities. CDCs are certified and regulated by the SBA. The payment period for SBA 504 loan is up to a maximum of 25 years. 
  • SBA 7(a): The 7(a) Loan Program, SBA’s most common loan program, includes financial help for small businesses with special requirements. This is the best option when real estate is part of a business purchase, but it can also be used for: 
    • Short- and long-term working capital 
    • Refinance current business debt 
    • Purchase furniture, fixtures, and supplies
  • Microloans: The microloan program provides loans up to $50,000 to help small businesses and certain not-for-profit childcare centers start up and expand. The average microloan is about $13,000. The SBA provides funds to specially designated intermediary lenders, which are nonprofit community-based organizations with experience in lending as well as management and technical assistance. These intermediaries administer the Microloan program for eligible borrowers.

What’s SBA loan payoff

SBA loan payoff refers to paying off a SBA loan prior to the maturity date. For example, if you have a remaining SBA loan of $800,000 that matures in 24 years and you pay off the entire loan in your next monthly loan payment, you’re engaging in what we call SBA loan payoff.

What are the benefits of paying off a SBA loan early?

Two key benefits of paying off a SBA loan early are the following:

  • Clear SBA loan debt. Once you’ve paid off your SBA loan, you’re free of the financial debt from your SBA loan!
  • Free up more cash flow in the future. Paying off your SBA loan means that you no longer need to pay your SBA loan payment on a monthly basis. You’ll free up cash inflow and use the money you’d use to pay for the SBA monthly payment on other business needs.

What are penalties for paying off a SBA 504 loan early?

There is a 10-year prepayment penalty on 20-year term or 25-year term SBA 504 Loans. Similarly, there is a 5-year prepayment penalty for SBA loans with a 10-year term. For a 20-year term or a 25-year term loan, the penalty begins at the note rate and decreases by 1/10 each year until it is zero at the end of the tenth year. The note rate will vary based on the debenture rate for your loan/bond.

For example, if the loan term is 20 years with a debenture rate of 3% and you want to pay off your loan in the 1st year, you’ll pay 100% of 3%, this means the penalty rate is 3% of the total prepayment amount. If you want to pay off your loan in the 9th year, you’ll pay 20% of 3%, totaling a penalty rate of 0.6%. However, if you pay off your loan after the 10th year, you won’t face any penalties.

Penalty Rate:

  • Year 1 = 1.00 (100% of debenture rate)
  • Year 2 = .90 (90% of debenture rate)
  • Year 3 = .80 (80% of debenture rate)
  • Year 4 = .70 (70% of debenture rate)
  • Year 5 = .60 (60% of debenture rate)
  • Year 6 = .50 (50% of debenture rate)
  • Year 7 = .40 (40% of debenture rate)
  • Year 8 = .30 (30% of debenture rate)
  • Year 9 = .20 (20% of debenture rate)
  • Year 10 = .10 (10% of debenture rate)
  • Year 11 and thereafter 0 (0% of debenture rate)

What’s SBA disaster loan payoff?

The SBA disaster loan is a form of low interest loans to businesses, nonprofit organizations, homeowners, and renters located in regions affected by declared disasters. SBA also provides eligible small businesses and nonprofit organizations with working capital to help overcome the economic injury of a declared disaster.

Similar to other SBA loan payoffs, a SBA disaster loan payoff occurs when a borrower pays off his or her SBA disaster loan prior to the maturity date. However, unlike other SBA loan payoffs, there’s no penalty for paying off a SBA disaster loan early.

How do I find my SBA loan balance?

You can find your SBA loan balance via two ways:

  • Monthly balance mail. SBA mails your balance each month. You can find out your balance in the mail.
  • Pay.gov. Access https://www.pay.gov/public/home and sign in your account to see your balance.

SBA loans are designed to help small businesses owners by providing small business owners with financial assistance that small business owners can use to expand their companies. With a goal of helping small businesses in mind, SBA doesn’t have vigorous policies to penalize small business owners for paying off their loans early. SBA wants small business owners to be debt-free and doesn’t want small business owners to incur further fees due to penalties associated with paying off their SBA loans early. If you have any questions about SBA loan payoff, please feel free to call us at 1-800-SBA-REAL (722-7325) or submit a contact form and we’ll be happy to help!