{"ok":true,"canonical_url":"https://dealroom.so/for-lenders/questions/what-specific-cash-flow-analysis-adjustments-are-required-for-a-change-of-ownership-with-a","api_url":"https://dealroom.so/api/public/questions/what-specific-cash-flow-analysis-adjustments-are-required-for-a-change-of-ownership-with-a","question":"What specific cash flow analysis adjustments are required for a change-of-ownership with a full standby seller note?","topic":"Change-of-Ownership Underwriting","audience":"lender","bot_mode":"lender","short_answer":"Lenders must exclude both principal and interest payments on the full standby seller note from the pro forma debt service calculation, as these payments cannot be made until the SBA loan is fully repaid.","rule":"A seller note on 'full standby' means no principal or interest payments can be made until the SBA 7(a) loan is paid in full. Therefore, for cash flow analysis, the lender must treat the seller note's payments as if they do not exist for the duration of the SBA loan, effectively boosting the apparent debt service coverage ratio for underwriting purposes.","example":"A $1.5M acquisition includes a $150,000 seller note on full standby. The annual principal and interest on this seller note would normally be $20,000. For the SBA loan underwriting, the lender performs cash flow projections and calculates the debt service coverage ratio, entirely excluding the $20,000 annual payment on the seller note from the business's expenses.","what_lenders_check":"Lenders must ensure the standby agreement is properly executed and prohibits payments for the entire SBA loan term. Failure to correctly account for standby debt in cash flow projections can lead to an inflated debt service coverage ratio, indicating a weaker borrower than justified, risking a guaranty repair.","required_facts":["Full standby seller note","No principal payments","No interest payments","Debt service calculation"],"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 specific due diligence is required for a 7(a) loan involving a change of ownership between related parties?","url":"https://dealroom.so/for-lenders/questions/what-specific-due-diligence-is-required-for-a-7-a-loan-involving-a-change-of-ownership-bet"},{"question":"How does a lender evaluate the management experience of a buyer who has no prior experience in the target industry?","url":"https://dealroom.so/for-lenders/questions/how-does-a-lender-evaluate-the-management-experience-of-a-buyer-who-has-no-prior-experienc"},{"question":"What happens if the business being acquired has significant outstanding tax liabilities at closing?","url":"https://dealroom.so/for-lenders/questions/what-happens-if-the-business-being-acquired-has-significant-outstanding-tax-liabilities-at"},{"question":"When is an independent business appraisal required for a change of ownership transaction exceeding $500,000?","url":"https://dealroom.so/for-lenders/questions/when-is-an-independent-business-appraisal-required-for-a-change-of-ownership-transaction-e"},{"question":"How does the SBA evaluate the reasonableness of goodwill in a 7(a) change-of-ownership transaction?","url":"https://dealroom.so/for-lenders/questions/how-does-the-sba-evaluate-the-reasonableness-of-goodwill-in-a-7-a-change-of-ownership-tran"},{"question":"What is the primary factor in determining SBA 7(a) loan eligibility for a business acquisition when the seller retains a minority equity stake?","url":"https://dealroom.so/for-lenders/questions/what-is-the-primary-factor-in-determining-sba-7-a-loan-eligibility-for-a-business-acquisit"}],"related_terms":[{"term":"Cash Flow Analysis","url":"https://dealroom.so/glossary/cash-flow-analysis"},{"term":"Change of ownership","url":"https://dealroom.so/glossary/change-of-ownership"},{"term":"Complete Change of Ownership","url":"https://dealroom.so/glossary/complete-change-of-ownership"},{"term":"Change-of-ownership loan","url":"https://dealroom.so/glossary/change-of-ownership-loan"},{"term":"Change-of-Ownership Transaction","url":"https://dealroom.so/glossary/change-of-ownership-transaction"},{"term":"Pro Forma Cash Flow Analysis","url":"https://dealroom.so/glossary/pro-forma-cash-flow-analysis"}],"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/for-lenders/questions/what-specific-cash-flow-analysis-adjustments-are-required-for-a-change-of-ownership-with-a","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."]}