{"ok":true,"canonical_url":"https://dealroom.so/sba-7a/questions/if-a-seller-note-is-structured-with-deferred-principal-payments-but-immediate-interest-pay","api_url":"https://dealroom.so/api/public/questions/if-a-seller-note-is-structured-with-deferred-principal-payments-but-immediate-interest-pay","question":"If a seller note is structured with deferred principal payments but immediate interest payments, does it still qualify as full standby?","topic":"Seller notes & standby","audience":"borrower","bot_mode":"buyer","short_answer":"No, a seller note with immediate interest payments, even if principal payments are deferred, does not qualify as 'full standby' under SBA rules; it is considered 'partial standby' or 'no standby.'","rule":"For a seller note to qualify as 'full standby' (which counts towards the equity injection), absolutely no payments of principal or interest are permitted during the standby period, typically for the life of the SBA loan or a minimum of two years. If interest payments are made, even with deferred principal, it's not full standby and therefore cannot be counted as buyer's equity injection.","example":"A seller provides a $75,000 note, agreeing to defer principal for two years but still wanting monthly interest. This note would not count toward the buyer's 10% equity injection for their $750,000 acquisition because it is not on full standby.","what_lenders_check":"Lenders strictly enforce the full standby requirement for notes counting as equity. Any form of payment to the seller, including interest, disqualifies it as full standby equity and will be factored into the business's debt service capacity.","required_facts":["Seller note structure","Full standby definition","Interest payments","Principal payments","Equity injection eligibility"],"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":"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":"Seller standby note","url":"https://dealroom.so/glossary/seller-standby-note"},{"term":"Subordinated Seller Note","url":"https://dealroom.so/glossary/subordinated-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/if-a-seller-note-is-structured-with-deferred-principal-payments-but-immediate-interest-pay","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."]}