{"ok":true,"canonical_url":"https://dealroom.so/sba-7a/questions/if-i-use-a-seller-note-as-part-of-my-equity-what-are-the-specific-subordination-terms-requ","api_url":"https://dealroom.so/api/public/questions/if-i-use-a-seller-note-as-part-of-my-equity-what-are-the-specific-subordination-terms-requ","question":"If I use a seller note as part of my equity, what are the specific subordination terms required?","topic":"Seller notes & standby","audience":"borrower","bot_mode":"buyer","short_answer":"A seller note counting as equity injection must be on \"full standby,\" meaning no principal or interest payments are made to the seller until the SBA loan is fully repaid.","rule":"The SBA requires seller notes used for equity injection to be on full standby for the life of the SBA loan. This means the seller cannot receive any payments from the business, neither principal nor interest, ensuring that the business's cash flow prioritizes repayment of the SBA-guaranteed loan.","example":"If a $1,000,000 acquisition has a $100,000 seller note making up part of the 10% equity, the seller cannot receive any payments (principal or interest) from the business for the entire 10-year term of the SBA loan.","what_lenders_check":"Lenders meticulously verify the standby agreement to ensure strict compliance with SBA regulations, preventing any payments to the seller that could impair the business's ability to service the SBA debt.","required_facts":["Seller note amount","Full standby requirement","No payments to seller","Loan term","Subordination agreement"],"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 Subordination Agreement","url":"https://dealroom.so/glossary/seller-note-subordination-agreement"},{"term":"Seller note","url":"https://dealroom.so/glossary/seller-note"},{"term":"Acceleration of the Note","url":"https://dealroom.so/glossary/acceleration-of-the-note"},{"term":"Holder of the Note","url":"https://dealroom.so/glossary/holder-of-the-note"},{"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":"2026-06-14","sba_rule_sources_checked_through":"2026-06-14"},"citation":{"label":"DealRoom.so SBA 7(a) Q&A","url":"https://dealroom.so/sba-7a/questions/if-i-use-a-seller-note-as-part-of-my-equity-what-are-the-specific-subordination-terms-requ","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."]}