{"ok":true,"canonical_url":"https://dealroom.so/for-lenders/questions/for-a-seller-note-on-full-standby-is-it-permissible-for-the-accrued-interest-to-capitalize","api_url":"https://dealroom.so/api/public/questions/for-a-seller-note-on-full-standby-is-it-permissible-for-the-accrued-interest-to-capitalize","question":"For a seller note on full standby, is it permissible for the accrued interest to capitalize or compound during the SBA 7(a) loan term?","topic":"Standby agreements","audience":"lender","bot_mode":"lender","short_answer":"Yes, it is permissible for accrued interest on a seller note on full standby to capitalize or compound, provided the standby agreement explicitly states this and no payments (principal or interest) are made during the standby period.","rule":"While no payments can be made on a full standby note, the interest can still accrue and, if stipulated, capitalize or compound. This means the unpaid interest is added to the principal balance, increasing the total amount owed to the seller at the end of the standby period. This must be clearly outlined in the standby agreement.","example":"A seller note for $200,000 at 5% interest is on full standby for 5 years. The standby agreement states that interest will accrue and capitalize annually. At the end of year 1, $10,000 in interest is added to the principal, making the new principal balance $210,000 for year 2's interest calculation.","what_lenders_check":"Lenders must ensure the standby agreement clearly defines whether and how interest accrues and capitalizes. This affects the total obligation to the seller post-SBA loan repayment and impacts future business cash flow.","required_facts":["Standby note","Accrued interest","Capitalization","Compounding","Standby agreement"],"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":"Accrued Interest","url":"https://dealroom.so/glossary/accrued-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/for-a-seller-note-on-full-standby-is-it-permissible-for-the-accrued-interest-to-capitalize","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."]}