{"ok":true,"canonical_url":"https://dealroom.so/sba-7a/questions/can-i-use-a-seller-note-that-pays-interest-only-for-the-first-two-years-towards-my-equity-","api_url":"https://dealroom.so/api/public/questions/can-i-use-a-seller-note-that-pays-interest-only-for-the-first-two-years-towards-my-equity-","question":"Can I use a seller note that pays interest only for the first two years towards my equity injection?","topic":"Seller notes & standby","audience":"borrower","bot_mode":"buyer","short_answer":"No, a seller note used for equity injection must be on \"full standby,\" meaning no principal or interest payments can be made by the business for the entire term of the SBA loan.","rule":"The SBA's \"full standby\" requirement for seller notes counting as equity prohibits any payments, whether principal or interest, from the business to the seller during the SBA loan's life. This ensures that the business's cash flow is entirely available to service the SBA debt.","example":"If a seller note contributes to the 10% equity, even if it's structured for interest-only payments initially, the lender will require it to be fully subordinated with no payments until the SBA loan is fully satisfied.","what_lenders_check":"Lenders will not approve a seller note with any payment schedule, including interest-only, if it is intended to count towards the borrower's equity injection, as this directly violates the full standby rule.","required_facts":["Seller note structure","Full standby rule","Interest-only payments","Principal payments","SBA loan term"],"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":"Interest-Only Payments","url":"https://dealroom.so/glossary/interest-only-payments"},{"term":"Interest-Only Payment","url":"https://dealroom.so/glossary/interest-only-payment"},{"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-i-use-a-seller-note-that-pays-interest-only-for-the-first-two-years-towards-my-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."]}