{"ok":true,"canonical_url":"https://dealroom.so/sba-7a/questions/what-are-the-requirements-for-a-seller-note-to-be-structured-with-partial-standby-for-a-bu","api_url":"https://dealroom.so/api/public/questions/what-are-the-requirements-for-a-seller-note-to-be-structured-with-partial-standby-for-a-bu","question":"What are the requirements for a seller note to be structured with partial standby for a business acquisition?","topic":"Seller notes & standby","audience":"borrower","bot_mode":"buyer","short_answer":"A seller note with partial standby means that principal and/or interest payments can be made to the seller, but only if the SBA lender approves it based on the business's cash flow and other conditions.","rule":"For a seller note to count towards the buyer's equity injection, it must be on 'full standby' (no principal or interest payments for the life of the SBA loan). If the seller note is not counting towards equity, it can be structured with 'partial standby,' where payments can be made, but only after specific conditions are met and with the express written consent of the SBA lender. This typically involves the business demonstrating sufficient cash flow after all other debt obligations.","example":"A $1,000,000 acquisition requires $100,000 equity injection. If a $50,000 seller note is used, it must be full standby. If the seller note is $150,000, the first $100,000 must be full standby, and the remaining $50,000 can be partial standby, allowing payments only if the business's Debt Service Coverage Ratio (DSCR) exceeds 1.25x.","what_lenders_check":"Lenders must ensure that any payments on a seller note, even partial standby, do not jeopardize the borrower's ability to repay the SBA loan. They will carefully monitor the business's financial performance and require specific trigger points for any approved payments.","required_facts":["Seller note amount","Equity injection requirement","Full standby vs. partial standby","Lender approval","Business cash flow","Debt Service Coverage Ratio"],"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":"Partial Standby Seller Note","url":"https://dealroom.so/glossary/partial-standby-seller-note"},{"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":"Partial Standby Agreement","url":"https://dealroom.so/glossary/partial-standby-agreement"},{"term":"Seller note on standby","url":"https://dealroom.so/glossary/seller-note-on-standby"},{"term":"Standby Note","url":"https://dealroom.so/glossary/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":"2026-06-14","sba_rule_sources_checked_through":"2026-06-14"},"citation":{"label":"DealRoom.so SBA 7(a) Q&A","url":"https://dealroom.so/sba-7a/questions/what-are-the-requirements-for-a-seller-note-to-be-structured-with-partial-standby-for-a-bu","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."]}