{"ok":true,"canonical_url":"https://dealroom.so/for-lenders/questions/can-interest-accrue-and-be-paid-on-a-seller-note-while-it-is-on-full-standby-for-an-sba-7-","api_url":"https://dealroom.so/api/public/questions/can-interest-accrue-and-be-paid-on-a-seller-note-while-it-is-on-full-standby-for-an-sba-7-","question":"Can interest accrue and be paid on a seller note while it is on full standby for an SBA 7(a) loan?","topic":"Standby agreements","audience":"lender","bot_mode":"lender","short_answer":"No, for a seller note on full standby, neither principal nor interest payments are permitted to be made to the seller during the standby period specified in the Standby Agreement.","rule":"A full standby agreement explicitly prohibits any payments of principal or interest on the subordinated debt to ensure the borrower's cash flow is entirely available to service the SBA loan. Any payment, including accrued interest, would violate the standby terms and jeopardize the SBA guaranty.","example":"A $50,000 seller note is on full standby for five years for a $400,000 SBA loan. The note has an 8% interest rate. During the five-year standby period, no principal or interest payments can be made to the seller. The interest may accrue (if the agreement allows) but cannot be paid until the standby period ends.","what_lenders_check":"Lenders must ensure the Standby Agreement explicitly prohibits both principal and interest payments for the entire standby duration. Verifying that no payments are made throughout the loan's life is critical for servicing and for future guaranty purchase requests.","required_facts":["Full standby","Seller note","Interest accrual","Payment prohibition","Standby period"],"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 note on standby","url":"https://dealroom.so/glossary/seller-note-on-standby"},{"term":"Seller Financing on Full Standby","url":"https://dealroom.so/glossary/seller-financing-on-full-standby"},{"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":"Accrue Interest","url":"https://dealroom.so/glossary/accrue-interest"},{"term":"Partial Standby Seller Note","url":"https://dealroom.so/glossary/partial-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":"2026-06-13","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-interest-accrue-and-be-paid-on-a-seller-note-while-it-is-on-full-standby-for-an-sba-7-","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."]}