{"ok":true,"canonical_url":"https://dealroom.so/sba-7a/questions/can-a-seller-note-be-subordinate-to-the-sba-loan-but-still-receive-principal-payments","api_url":"https://dealroom.so/api/public/questions/can-a-seller-note-be-subordinate-to-the-sba-loan-but-still-receive-principal-payments","question":"Can a seller note be subordinate to the SBA loan but still receive principal payments?","topic":"Seller notes & standby","audience":"borrower","bot_mode":"buyer","short_answer":"Generally, if a seller note is intended to count towards the buyer's equity injection, it must be on 'full standby' meaning no principal or interest payments are made until the SBA loan is repaid.","rule":"A seller note on 'full standby' cannot receive any payments of principal or interest from the business or borrower until the SBA loan is fully satisfied. If the seller note receives principal payments, even if subordinate, it typically cannot be counted as equity injection because it represents an ongoing debt obligation rather than an owner's contribution.","example":"A buyer purchases a $700,000 business, requiring a $70,000 equity injection. The seller offers a $70,000 note with principal payments deferred for two years, but then commencing. Because principal payments will occur, this note would not qualify as full standby and the buyer would need other equity.","what_lenders_check":"Lenders scrutinize the terms of all seller notes to ensure compliance with SBA standby requirements. Any provision for principal or interest payments on a note intended as equity injection will lead to its disqualification unless it is fully subordinate for the life of the SBA loan.","required_facts":["Seller note","Subordinate","Principal payments","Full standby","Equity injection","SBA loan repayment"],"source_families":["SOP 50 10 - Lender and Development Company Loan Programs","13 CFR Part 120 - Business Loans"],"official_sources":[{"title":"SOP 50 10 - Lender and Development Company Loan Programs","url":"https://www.sba.gov/sites/default/files/2025-05/SOP%2050%2010%208%20Technical%20Updates%20effective%206.1.2025.docx"},{"title":"13 CFR Part 120 - Business Loans","url":"https://www.ecfr.gov/current/title-13/chapter-I/part-120"}],"related_questions":[{"question":"If a seller takes a fully subordinated note, can they remain an employee or consultant after acquisition?","url":"https://dealroom.so/sba-7a/questions/if-a-seller-takes-a-fully-subordinated-note-can-they-remain-an-employee-or-consultant-afte"},{"question":"For a $900,000 business acquisition, what percentage of the total required equity injection can come from a fully subordinated seller note?","url":"https://dealroom.so/sba-7a/questions/for-a-900-000-business-acquisition-what-percentage-of-the-total-required-equity-injection-"},{"question":"Can a seller who takes a fully subordinated note also remain an employee or consultant of the business after the acquisition?","url":"https://dealroom.so/sba-7a/questions/can-a-seller-who-takes-a-fully-subordinated-note-also-remain-an-employee-or-consultant-of-"},{"question":"How does an earn-out provision affect an SBA 7(a) loan for a business acquisition?","url":"https://dealroom.so/sba-7a/questions/how-does-an-earn-out-provision-affect-an-sba-7-a-loan-for-a-business-acquisition"},{"question":"What is the minimum term duration a seller note must be on full standby for an SBA loan?","url":"https://dealroom.so/sba-7a/questions/what-is-the-minimum-term-duration-a-seller-note-must-be-on-full-standby-for-an-sba-loan"},{"question":"Can interest be accrued and paid on a seller note while it is on full standby?","url":"https://dealroom.so/sba-7a/questions/can-interest-be-accrued-and-paid-on-a-seller-note-while-it-is-on-full-standby"}],"related_terms":[{"term":"Seller note","url":"https://dealroom.so/glossary/seller-note"},{"term":"Deferred Principal Payments","url":"https://dealroom.so/glossary/deferred-principal-payments"},{"term":"Subordinate","url":"https://dealroom.so/glossary/subordinate"},{"term":"Seller standby note","url":"https://dealroom.so/glossary/seller-standby-note"},{"term":"Subordinated Seller Note","url":"https://dealroom.so/glossary/subordinated-seller-note"},{"term":"Standby seller note","url":"https://dealroom.so/glossary/standby-seller-note"}],"related_tools":[{"name":"SBA 7(a) payment & fee calculator","url":"https://dealroom.so/sba-7a/calculator"},{"name":"Find an active SBA 7(a) lender","url":"https://dealroom.so/lenders"}],"data_freshness":{"last_reviewed":"2026-06-14","sba_rule_sources_checked_through":"2026-06-14"},"citation":{"label":"DealRoom.so SBA 7(a) Q&A","url":"https://dealroom.so/sba-7a/questions/can-a-seller-note-be-subordinate-to-the-sba-loan-but-still-receive-principal-payments","source_type":"DealRoom Q&A"},"caveats":["Grounded in the current SBA rulebook; verify against official sources before relying on it for a live deal.","Not legal, tax, or financial advice and not an approval decision."]}