Prepayment Penalty Calculator

Understanding Prepayment Penalties

Prepayment penalties compensate lenders for the interest income they lose when you pay off early. Not all business loans have them, but many do. The penalty can range from 1% to 5% of the remaining balance, a minimum number of months of interest, or a flat fee. Some penalties decline over time (like SBA loans), making early payoff more attractive as the loan ages. Before paying off or refinancing any business loan, calculate the penalty and compare it against the interest you would save. That is what this calculator does.

Common Penalty Structures

Bank term loans typically charge 1% to 5% of the remaining balance. SBA 7(a) loans have a specific declining structure: 5% in year 1, 3% in year 2, 1% in year 3, and nothing after that. The SBA penalty only applies when you refinance with another loan, not when you pay off from business cash flow. Online lenders often use "minimum interest" clauses: you owe a set number of months of interest regardless of when you pay off. Lines of credit typically have no prepayment penalty, which is one reason they are a flexible financing option. Use our SBA loan calculator to model the full cost of SBA financing including fees.

When to Pay the Penalty

The math is straightforward: if the interest you save exceeds the penalty, paying off early makes sense. On a $100,000 loan at 15% with 36 months left, remaining interest is roughly $25,000. A 3% penalty costs $3,000. Net savings: $22,000. For refinancing, you also need to factor in the new loan fees and the break-even timeline. If your break-even is 24 months on a 36-month remaining term, you have 12 months of true savings. If the break-even exceeds your remaining term, refinancing loses money. A good rule: the break-even should be less than half your remaining term. Use our loan payment calculator to model different payment scenarios.

Finding Loans Without Penalties

When comparing loan offers, always ask about prepayment terms. A slightly higher rate with no penalty can be cheaper long-term than a lower rate with a 5% penalty, especially if you plan to pay off early or refinance down the road. Most business lines of credit, some online term loans, and SBA Express loans do not have prepayment penalties. Use our loan comparison tool to evaluate offers side by side, including fee impact. Talk to a funding specialist to find options with the terms that fit your plans, with no impact to your credit score.