{"ok":true,"canonical_url":"https://dealroom.so/for-lenders/questions/can-a-seller-note-with-deferred-payments-but-no-interest-count-as-full-standby-for-equity-","api_url":"https://dealroom.so/api/public/questions/can-a-seller-note-with-deferred-payments-but-no-interest-count-as-full-standby-for-equity-","question":"Can a seller note with deferred payments but no interest count as full standby for equity injection?","topic":"Standby agreements","audience":"lender","bot_mode":"lender","short_answer":"No, a seller note with deferred principal payments but that still accrues interest (even if no payments are made) typically does not qualify as full standby for equity injection, as full standby requires no payment of principal or interest.","rule":"For seller financing to count as equity injection, it must be on 'full standby,' meaning absolutely no payments of principal or interest are made to the seller for the entire term of the SBA loan. If interest accrues, even if deferred, it creates a growing liability that the SBA views as potentially compromising the borrower's ability to repay the SBA loan. Such a note would generally be treated as regular debt, not equity.","example":"A seller provides a $100,000 note with a 5-year deferral of principal payments, but interest at 5% accrues annually and is payable at maturity. This note would not be considered 'full standby' because interest is accruing, creating an obligation that grows over time. The lender would not be able to count this $100,000 towards the borrower's equity injection.","what_lenders_check":"Lenders must ensure that seller notes intended for equity injection meet strict full standby requirements. Any form of accrual or payment, even if deferred, can disqualify the note from equity treatment and lead to an insufficient equity injection finding by the SBA.","required_facts":["Deferred principal","Accruing interest","No principal payments","No interest payments","Full standby definition","Equity injection"],"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":"What documentation must a lender obtain to ensure a seller note is fully on standby and subordinated to the SBA 7(a) loan?","url":"https://dealroom.so/for-lenders/questions/what-documentation-must-a-lender-obtain-to-ensure-a-seller-note-is-fully-on-standby-and-su"},{"question":"What specific financial covenants or conditions must be included in a seller note on full standby for a 7(a) acquisition loan?","url":"https://dealroom.so/for-lenders/questions/what-specific-financial-covenants-or-conditions-must-be-included-in-a-seller-note-on-full-"},{"question":"What specific language must a standby agreement for a seller note include to meet SBA 7(a) requirements for equity injection?","url":"https://dealroom.so/for-lenders/questions/what-specific-language-must-a-standby-agreement-for-a-seller-note-include-to-meet-sba-7-a-"},{"question":"What is the impact on an SBA 7(a) loan if a seller note on full standby is repaid prematurely without the lender's knowledge?","url":"https://dealroom.so/for-lenders/questions/what-is-the-impact-on-an-sba-7-a-loan-if-a-seller-note-on-full-standby-is-repaid-premature"},{"question":"What are the specific SBA requirements for a seller's note to be on full standby?","url":"https://dealroom.so/for-lenders/questions/what-are-the-specific-sba-requirements-for-a-seller-s-note-to-be-on-full-standby"},{"question":"What specific language must a non-SBA third-party standby agreement include to ensure eligibility?","url":"https://dealroom.so/for-lenders/questions/what-specific-language-must-a-non-sba-third-party-standby-agreement-include-to-ensure-elig"}],"related_terms":[{"term":"Seller standby note","url":"https://dealroom.so/glossary/seller-standby-note"},{"term":"Standby seller note","url":"https://dealroom.so/glossary/standby-seller-note"},{"term":"Seller note on standby","url":"https://dealroom.so/glossary/seller-note-on-standby"},{"term":"Partial Standby Seller Note","url":"https://dealroom.so/glossary/partial-standby-seller-note"},{"term":"Standby Note","url":"https://dealroom.so/glossary/standby-note"},{"term":"Deferred Principal Payments","url":"https://dealroom.so/glossary/deferred-principal-payments"}],"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":"2026-06-13","sba_rule_sources_checked_through":"2026-06-13"},"citation":{"label":"DealRoom.so SBA 7(a) Q&A","url":"https://dealroom.so/for-lenders/questions/can-a-seller-note-with-deferred-payments-but-no-interest-count-as-full-standby-for-equity-","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."]}