{"ok":true,"canonical_url":"https://dealroom.so/sba-7a/questions/how-does-a-seller-note-on-full-standby-affect-the-debt-service-coverage-ratio-calculation","api_url":"https://dealroom.so/api/public/questions/how-does-a-seller-note-on-full-standby-affect-the-debt-service-coverage-ratio-calculation","question":"How does a seller note on full standby affect the debt service coverage ratio calculation?","topic":"Seller notes & standby","audience":"borrower","bot_mode":"buyer","short_answer":"A seller note on full standby is typically added back to the business's cash flow for purposes of calculating the debt service coverage ratio (DSCR).","rule":"When a seller note is on full standby, no payments (principal or interest) are made to the seller until the SBA loan is fully repaid. Because these funds are not expended from the business, they are treated as available cash flow, effectively improving the DSCR calculation and demonstrating stronger repayment ability for the SBA loan.","example":"A business has $200,000 in cash flow available for debt service. It has a new SBA loan payment of $120,000 annually. If there's also a $30,000 annual seller note payment on full standby, the DSCR calculation would use $200,000 (actual cash flow) / $120,000 (SBA debt service) = 1.67x, not deducting the seller note.","what_lenders_check":"Lenders rely on the full standby agreement to accurately reflect the business's ability to service the SBA debt. They rigorously verify the standby terms to ensure the seller note truly does not require payment, thereby strengthening the DSCR.","required_facts":["Seller note standby","Full standby terms","DSCR calculation","Cash flow impact","No payments"],"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 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":"Debt service coverage ratio waiver","url":"https://dealroom.so/glossary/debt-service-coverage-ratio-waiver"},{"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":"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/sba-7a/questions/how-does-a-seller-note-on-full-standby-affect-the-debt-service-coverage-ratio-calculation","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."]}