{"ok":true,"canonical_url":"https://dealroom.so/for-lenders/questions/what-are-the-consequences-if-a-fully-standby-seller-note-is-prematurely-repaid","api_url":"https://dealroom.so/api/public/questions/what-are-the-consequences-if-a-fully-standby-seller-note-is-prematurely-repaid","question":"What are the consequences if a fully standby seller note is prematurely repaid?","topic":"Standby agreements","audience":"lender","bot_mode":"lender","short_answer":"Premature repayment of a fully standby seller note is a violation of SBA policy and will result in a guaranty repair or denial, as it compromises the required equity injection.","rule":"A seller note on full standby is intended to act as equity and cannot receive any payments of principal or interest during the standby period (minimum two years or until the SBA loan is repaid). Any payment, even partial, before the standby period ends or the SBA loan is fully satisfied, is a breach of the standby agreement. This alters the capital structure, making the loan ineligible for the SBA guaranty.","example":"A $1,000,000 acquisition includes a $100,000 seller note on full standby. Six months after closing, the borrower makes a $20,000 payment to the seller on the standby note. Upon discovery, the SBA would likely impose a guaranty repair or denial, as the terms of the standby agreement were violated, reducing the lender's recovery from the SBA.","what_lenders_check":"Lenders must monitor standby notes closely to prevent premature repayment. This includes requiring borrowers to provide periodic certifications and reviewing bank statements for unauthorized payments. Failure to prevent or promptly address such a violation will negatively impact the SBA guaranty.","required_facts":["Premature repayment","Full standby","Guaranty repair","Equity injection","Violation of terms"],"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":"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":"Seller standby note","url":"https://dealroom.so/glossary/seller-standby-note"},{"term":"Standby seller note","url":"https://dealroom.so/glossary/standby-seller-note"},{"term":"Seller note on standby","url":"https://dealroom.so/glossary/seller-note-on-standby"},{"term":"Partial Standby Seller Note","url":"https://dealroom.so/glossary/partial-standby-seller-note"},{"term":"Standby Note","url":"https://dealroom.so/glossary/standby-note"},{"term":"Seller note","url":"https://dealroom.so/glossary/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/for-lenders/questions/what-are-the-consequences-if-a-fully-standby-seller-note-is-prematurely-repaid","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."]}