{"ok":true,"canonical_url":"https://dealroom.so/for-lenders/questions/what-specific-conditions-allow-a-seller-note-with-deferred-principal-payments-but-immediat","api_url":"https://dealroom.so/api/public/questions/what-specific-conditions-allow-a-seller-note-with-deferred-principal-payments-but-immediat","question":"What specific conditions allow a seller note with deferred principal payments but immediate interest to qualify as full standby?","topic":"Standby Agreements","audience":"lender","bot_mode":"lender","short_answer":"A seller note with deferred principal but immediate interest payments *does not* qualify as full standby. Full standby requires no payments of either principal or interest for the specified standby period.","rule":"SBA defines full standby as a debt where no payments of principal *or* interest are made for the entire term of the SBA loan, or for at least two years (whichever is shorter, and often longer for acquisition loans). If interest payments are made, even with principal deferred, it is considered partial standby, which has different implications for equity injection and debt service coverage.","example":"A seller agrees to a $75,000 note with principal deferred for two years, but interest payments beginning immediately. The lender would classify this as partial standby. If the intent was for it to count as equity injection, it would not qualify under full standby rules.","what_lenders_check":"Lenders must accurately classify seller notes as full or partial standby based on payment terms. Misclassifying a partial standby note as full standby, especially if it's meant to count as equity, could result in a finding of insufficient equity and a guaranty repair.","required_facts":["Seller note","Full standby definition","Deferred principal","Immediate interest","SBA loan priority"],"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 documentation does a lender need to confirm full standby status for a seller note in an acquisition?","url":"https://dealroom.so/for-lenders/questions/what-specific-documentation-does-a-lender-need-to-confirm-full-standby-status-for-a-seller"},{"question":"How does a lender verify the full standby status of a non-SBA debt to ensure eligibility for a 7(a) loan?","url":"https://dealroom.so/for-lenders/questions/how-does-a-lender-verify-the-full-standby-status-of-a-non-sba-debt-to-ensure-eligibility-f"},{"question":"When is a lender required to obtain a subordination agreement for existing business debt?","url":"https://dealroom.so/for-lenders/questions/when-is-a-lender-required-to-obtain-a-subordination-agreement-for-existing-business-debt"},{"question":"How does a lender verify a seller note's full standby status for 7(a) equity injection compliance?","url":"https://dealroom.so/for-lenders/questions/how-does-a-lender-verify-a-seller-note-s-full-standby-status-for-7-a-equity-injection-comp"},{"question":"What are the key requirements for a seller note to qualify as \"full standby\" for equity injection purposes in a 7(a) acquisition?","url":"https://dealroom.so/for-lenders/questions/what-are-the-key-requirements-for-a-seller-note-to-qualify-as-full-standby-for-equity-inje"},{"question":"Can a seller note on full standby be repaid early if the business performs exceptionally well and the SBA loan is current?","url":"https://dealroom.so/for-lenders/questions/can-a-seller-note-on-full-standby-be-repaid-early-if-the-business-performs-exceptionally-w"}],"related_terms":[{"term":"Deferred Principal Payments","url":"https://dealroom.so/glossary/deferred-principal-payments"},{"term":"Seller note","url":"https://dealroom.so/glossary/seller-note"},{"term":"Interest-Only Payments","url":"https://dealroom.so/glossary/interest-only-payments"},{"term":"Deferred Principal Payment","url":"https://dealroom.so/glossary/deferred-principal-payment"},{"term":"Seller standby note","url":"https://dealroom.so/glossary/seller-standby-note"},{"term":"Subordinated Seller Note","url":"https://dealroom.so/glossary/subordinated-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-specific-conditions-allow-a-seller-note-with-deferred-principal-payments-but-immediat","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."]}