{"ok":true,"canonical_url":"https://dealroom.so/sba-7a/questions/what-happens-if-a-seller-note-on-full-standby-is-repaid-without-lender-approval","api_url":"https://dealroom.so/api/public/questions/what-happens-if-a-seller-note-on-full-standby-is-repaid-without-lender-approval","question":"What happens if a seller note on full standby is repaid without lender approval?","topic":"Seller notes & standby","audience":"borrower","bot_mode":"buyer","short_answer":"If a seller note on full standby is repaid without prior lender approval, it constitutes a material breach of the standby agreement and can jeopardize the SBA loan guaranty.","rule":"The standby agreement legally subordinates the seller's claim to the SBA loan, meaning no payments are permitted without lender consent. Unauthorized repayment demonstrates a failure to adhere to the loan terms and conditions, compromising the lender's collateral position and SBA's interest.","example":"A business acquired with a $50,000 seller note on full standby makes a $20,000 payment to the seller without the lender's knowledge. This action would violate the standby agreement, potentially leading to a default on the SBA loan.","what_lenders_check":"Lenders rely on standby agreements to strengthen the borrower's equity position. Unauthorized payments signal a lack of compliance and can trigger a default, leading to potential issues with the SBA guaranty.","required_facts":[],"source_families":["SOP 50 10 - Lender and Development Company Loan Programs","13 CFR Part 120 - Business Loans","SOP 50 57 - 7(a) Loan Servicing and Liquidation"],"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":"SOP 50 57 - 7(a) Loan Servicing and Liquidation","url":"https://www.sba.gov/sites/default/files/2025-09/FINAL%20SOP%205057%204%20version.pdf"}],"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 on standby","url":"https://dealroom.so/glossary/seller-note-on-standby"},{"term":"Seller Financing on Full Standby","url":"https://dealroom.so/glossary/seller-financing-on-full-standby"},{"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 Seller Note","url":"https://dealroom.so/glossary/partial-standby-seller-note"},{"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":"2026-06-13","sba_rule_sources_checked_through":"2026-06-13"},"citation":{"label":"DealRoom.so SBA 7(a) Q&A","url":"https://dealroom.so/sba-7a/questions/what-happens-if-a-seller-note-on-full-standby-is-repaid-without-lender-approval","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."]}