§ 107.830. Duration/term of financing.
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/us/cfr/t13/s§ 107.830·A research copy — for the controlling text, always check the official state or federal source. Not legal advice.
(a)General rule. The duration/term of all your Financings must be for a minimum period of one year, and the maximum term of any Loan or Debt Security Financing must be no longer than 20 years. The principal of any Loan (or the loan portion of any Debt Security) with a term of one year or less cannot be amortized faster than straight line. If the term is greater than one year, the principal cannot be amortized faster than straight line for the first year.
(b)Exceptions. You may make a Short-term Financing for a term less than one year if the Financing is:
(1)An interim Financing in contemplation of long-term Financing. The contemplated long-term Financing must be in an amount at least equal to the short-term Financing, and must be made by you alone or in participation with other investors;
(2)For protection of your prior investment(s);
(3)For the purpose of Financing a change of ownership under § 107.750. The total amount of such Short-term Financings may not exceed 20 percent of your Loans and Investments (at cost) at the end of any fiscal year; or
(4)For the purposes of aiding a Disadvantaged Business certified to perform a contract awarded under a Federal, State, or local government set-aside program.
(c)Restrictions on mandatory redemption of Equity Securities. If you have acquired Equity Securities, options or warrants on terms that include redemption by the Small Business, you must not require redemption by the Small Business within the first year of your acquisition except as permitted in § 107.850.
(d)Special rules for Loans and Debt Securities---(1) Term. The minimum term for Loans and Debt Securities starts with the first disbursement of the Financing.
(2)Prepayment. You must permit voluntary prepayment of Loans and Debt Securities by the Small Business. You must obtain SBA's prior written approval of any restrictions on the ability of the Small Business to prepay other than the imposition of a reasonable prepayment penalty under paragraph (c)(3) of this section. For purposes of evaluating prepayment restrictions under this section, requirements to apply prepayments pro rata among a group of lenders participating in such Financing that is pari passu in rights to payment will not be deemed to constitute a restriction on prepayments.
(3)Prepayment penalties. You may charge a reasonable prepayment penalty which must be agreed upon at the time of the Financing. If SBA determines that a prepayment penalty is unreasonable, you must refund the entire penalty to the Small Business. A prepayment penalty equal to 5 percent of the outstanding balance during the first year of any Financing, declining by one percentage point per year through the fifth year, is considered reasonable. \[61 FR 3189, Jan. 31, 1996, as amended at 69 FR 8098, Feb. 23, 2004; 88 FR 46012, July 18, 2023; 91 FR 8, Jan. 2, 2026\]
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§ 107.830
Duration/term of financing.
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