{"ok":true,"canonical_url":"https://dealroom.so/sba-7a/questions/what-if-the-departing-partner-also-holds-a-seller-note-how-does-this-impact-the-standby-re","api_url":"https://dealroom.so/api/public/questions/what-if-the-departing-partner-also-holds-a-seller-note-how-does-this-impact-the-standby-re","question":"What if the departing partner also holds a seller note; how does this impact the standby requirements?","topic":"Partner buyouts","audience":"borrower","bot_mode":"buyer","short_answer":"If a departing partner holds a seller note, that note must be fully subordinated (full standby) to the SBA loan and cannot receive payments until the SBA loan is repaid, if it counts towards the equity injection.","rule":"Similar to any other seller note used in an acquisition, if a departing partner's note is intended to count towards the buyer's required equity injection, it must be on full standby. This means no principal or interest payments are permitted to the departing partner until the SBA loan is fully repaid. This ensures that the funds represented by the note are truly 'at risk' in the business and do not compete with the SBA loan's repayment.","example":"You are buying out a partner for $200,000, and the required equity injection is $50,000. You contribute $25,000 cash, and the departing partner accepts a $25,000 seller note. This $25,000 note must be on full standby, meaning the partner cannot receive any payments until the SBA loan is paid off.","what_lenders_check":"Lenders will ensure the departing partner's note is properly documented and legally binding as fully subordinated. This prevents the departing partner from having a senior claim on the business's cash flow over the SBA loan.","required_facts":["Departing partner note","Full standby requirement","Equity injection","SBA loan priority","No payments to partner"],"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 I'm buying out a partner, does the remaining partner also need to personally guarantee the SBA loan for $500,000?","url":"https://dealroom.so/sba-7a/questions/if-i-m-buying-out-a-partner-does-the-remaining-partner-also-need-to-personally-guarantee-t"},{"question":"If I am buying out a partner, does the SBA require the business to pass a cash flow test post-acquisition?","url":"https://dealroom.so/sba-7a/questions/if-i-am-buying-out-a-partner-does-the-sba-require-the-business-to-pass-a-cash-flow-test-po"},{"question":"If I am buying out a partner, how does the SBA ensure the purchase price is fair and justifiable?","url":"https://dealroom.so/sba-7a/questions/if-i-am-buying-out-a-partner-how-does-the-sba-ensure-the-purchase-price-is-fair-and-justif"},{"question":"Can an SBA 7(a) loan be used to purchase a business if the seller will retain a minority ownership stake?","url":"https://dealroom.so/sba-7a/questions/can-an-sba-7-a-loan-be-used-to-purchase-a-business-if-the-seller-will-retain-a-minority-ow"},{"question":"What are the requirements for the seller in an SBA 7(a) business acquisition loan?","url":"https://dealroom.so/sba-7a/questions/what-are-the-requirements-for-the-seller-in-an-sba-7-a-business-acquisition-loan"},{"question":"Can an SBA 7(a) loan be used to fund a partner buyout with an earn-out provision?","url":"https://dealroom.so/sba-7a/questions/can-an-sba-7-a-loan-be-used-to-fund-a-partner-buyout-with-an-earn-out-provision"}],"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":"2026-06-14","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-if-the-departing-partner-also-holds-a-seller-note-how-does-this-impact-the-standby-re","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."]}