{"ok":true,"canonical_url":"https://dealroom.so/for-lenders/questions/how-does-a-seller-note-on-partial-standby-affect-an-sba-7-a-loan-s-debt-service-coverage-r","api_url":"https://dealroom.so/api/public/questions/how-does-a-seller-note-on-partial-standby-affect-an-sba-7-a-loan-s-debt-service-coverage-r","question":"How does a seller note on partial standby affect an SBA 7(a) loan's debt service coverage ratio?","topic":"Standby agreements","audience":"lender","bot_mode":"lender","short_answer":"A seller note on partial standby, where some payments are deferred and others are made, must have the deferred portion treated as equity for DSCR calculation, while the payable portion is treated as debt.","rule":"If a seller note is partially on standby, only the portion that is on full standby (no payments of principal or interest) can be considered equity for debt service coverage purposes. Any portion that is being paid, even if deferred for a short period, must be factored into the debt service calculation.","example":"A $100,000 seller note states $50,000 is on full standby for 24 months, and the remaining $50,000 is paid monthly starting at closing. For DSCR, the $50,000 fully on standby would be ignored, but the monthly payments on the other $50,000 would be included in the total debt service.","what_lenders_check":"Lenders must carefully analyze partial standby agreements to correctly categorize the debt and equity components for DSCR calculations. Misinterpreting these terms can lead to an inflated DSCR and a non-compliant loan.","required_facts":["Partial standby","Deferred payments","Equity treatment","Debt service","DSCR calculation"],"source_families":["SOP 50 10 - Lender and Development Company Loan Programs","13 CFR Part 120 - Business Loans","7(a) Loan Program Terms, Conditions, and Eligibility"],"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"},{"title":"7(a) Loan Program Terms, Conditions, and Eligibility","url":"https://www.sba.gov/partners/lenders/7a-loan-program/terms-conditions-eligibility"}],"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":"Partial Standby Seller Note","url":"https://dealroom.so/glossary/partial-standby-seller-note"},{"term":"Seller note on standby","url":"https://dealroom.so/glossary/seller-note-on-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":"SBA 7(a) loan","url":"https://dealroom.so/glossary/sba-7-a-loan"},{"term":"7(a) loan","url":"https://dealroom.so/glossary/7a-loan"}],"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/how-does-a-seller-note-on-partial-standby-affect-an-sba-7-a-loan-s-debt-service-coverage-r","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."]}