{"ok":true,"canonical_url":"https://dealroom.so/sba-7a/questions/if-a-seller-note-has-deferred-principal-payments-but-pays-interest-from-day-one-does-it-qu","api_url":"https://dealroom.so/api/public/questions/if-a-seller-note-has-deferred-principal-payments-but-pays-interest-from-day-one-does-it-qu","question":"If a seller note has deferred principal payments but pays interest from day one, does it qualify as full standby?","topic":"Seller notes & standby","audience":"borrower","bot_mode":"buyer","short_answer":"No, a seller note that pays interest from day one, even with deferred principal, does not typically qualify as full standby for SBA 7(a) loan purposes.","rule":"For a seller note to count towards the equity injection and be considered 'full standby,' it generally must prohibit both principal and interest payments for the entire term of the SBA 7(a) loan. If interest payments begin immediately, it is considered 'partial standby' at best, which may not satisfy the equity requirement.","example":"A buyer needs a $50,000 seller note on full standby to meet their equity. The seller offers a $50,000 note with principal deferred for 7 years but with 5% interest payable monthly from closing. This note would not be considered full standby and would therefore not count towards the buyer's equity injection.","what_lenders_check":"Lenders strictly enforce the full standby requirement to ensure the seller's capital truly acts as equity, prioritizing the SBA loan's repayment. Any payments to the seller (principal or interest) before the SBA loan is repaid undermine this standby position.","required_facts":["Seller note terms","Deferred principal","Interest payments","Full standby definition","Equity qualification"],"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":"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":"Deferred Principal Payments","url":"https://dealroom.so/glossary/deferred-principal-payments"},{"term":"Seller note","url":"https://dealroom.so/glossary/seller-note"},{"term":"Interest-Only Payments","url":"https://dealroom.so/glossary/interest-only-payments"},{"term":"Deferred Principal Payment","url":"https://dealroom.so/glossary/deferred-principal-payment"},{"term":"Indemnification from the Seller","url":"https://dealroom.so/glossary/indemnification-from-the-seller"},{"term":"Seller standby note","url":"https://dealroom.so/glossary/seller-standby-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/if-a-seller-note-has-deferred-principal-payments-but-pays-interest-from-day-one-does-it-qu","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."]}