{"ok":true,"canonical_url":"https://dealroom.so/for-lenders/questions/what-happens-if-a-seller-note-on-full-standby-is-repaid-without-prior-lender-approval-duri","api_url":"https://dealroom.so/api/public/questions/what-happens-if-a-seller-note-on-full-standby-is-repaid-without-prior-lender-approval-duri","question":"What happens if a seller note on full standby is repaid without prior lender approval, during the SBA loan term?","topic":"Standby agreements","audience":"lender","bot_mode":"lender","short_answer":"If a fully standby seller note is repaid without the lender's prior written approval, it constitutes a material breach of the standby agreement and can result in a repair or denial of the SBA guaranty.","rule":"A full standby agreement requires the seller note to be completely subordinate, with no payments of principal or interest, for the stipulated period (minimum two years). Unauthorized repayment undermines the equity injection that the standby note represents, indicating the borrower is not truly 'at risk' as intended by SBA policy.","example":"A $70,000 seller note is on full standby for two years. Eighteen months into the SBA loan, the borrower (without notifying the lender) repays the seller note due to strong cash flow. Upon discovery, the SBA could claim that the initial equity injection was improperly represented, leading to a guaranty repair.","what_lenders_check":"Lenders must closely monitor standby agreements. They need to inform borrowers and sellers of the strict terms and consequences of non-compliance. Any early repayment significantly jeopardizes the SBA guaranty.","required_facts":["Seller note","Full standby","Unauthorized repayment","Lender approval","Guaranty repair","Material breach"],"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 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":"Prior Approval","url":"https://dealroom.so/glossary/prior-approval"},{"term":"Partial Standby Seller Note","url":"https://dealroom.so/glossary/partial-standby-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-happens-if-a-seller-note-on-full-standby-is-repaid-without-prior-lender-approval-duri","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."]}