{"ok":true,"canonical_url":"https://dealroom.so/sba-7a/questions/if-a-seller-note-includes-principal-payments-during-the-first-year-can-it-still-be-used-as","api_url":"https://dealroom.so/api/public/questions/if-a-seller-note-includes-principal-payments-during-the-first-year-can-it-still-be-used-as","question":"If a seller note includes principal payments during the first year, can it still be used as equity?","topic":"Seller notes & standby","audience":"borrower","bot_mode":"buyer","short_answer":"No, if a seller note includes principal payments during the first year of the SBA loan, it generally cannot be counted towards the buyer's required equity injection.","rule":"For a seller note to count as equity injection, it must be on 'full standby' for a minimum of two years. Full standby means no principal or interest payments can be made to the seller during this period. Any payment, even principal, within the first year would violate this rule, making the note ineligible as equity.","example":"A $100,000 seller note is proposed for equity. If the terms specify $1,000 monthly principal payments starting three months after closing, this note would not qualify for equity injection because it's not on full standby.","what_lenders_check":"Lenders strictly enforce the full standby requirement for seller notes counting as equity to protect the SBA loan's repayment ability. Any deviation could result in the note being reclassified as debt, potentially making the borrower ineligible or increasing the required cash injection.","required_facts":["Seller note terms","Full standby requirement","No principal payments","Minimum two-year period"],"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":"Seller note","url":"https://dealroom.so/glossary/seller-note"},{"term":"Deferred Principal Payments","url":"https://dealroom.so/glossary/deferred-principal-payments"},{"term":"Seller standby note","url":"https://dealroom.so/glossary/seller-standby-note"},{"term":"Subordinated Seller Note","url":"https://dealroom.so/glossary/subordinated-seller-note"},{"term":"Standby seller note","url":"https://dealroom.so/glossary/standby-seller-note"},{"term":"Seller Note Subordination Agreement","url":"https://dealroom.so/glossary/seller-note-subordination-agreement"}],"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-includes-principal-payments-during-the-first-year-can-it-still-be-used-as","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."]}