{"ok":true,"canonical_url":"https://dealroom.so/sba-7a/questions/what-specific-conditions-make-a-seller-s-standby-note-eligible-to-count-towards-my-equity-","api_url":"https://dealroom.so/api/public/questions/what-specific-conditions-make-a-seller-s-standby-note-eligible-to-count-towards-my-equity-","question":"What specific conditions make a seller's standby note eligible to count towards my equity injection?","topic":"Seller notes & standby","audience":"borrower","bot_mode":"buyer","short_answer":"A seller's standby note must be on 'full standby' to count as equity. This means no principal or interest payments can be made on the note for the entire term of the SBA loan, and it must be fully subordinated to the SBA loan.","rule":"The SBA requires true equity injection to demonstrate the borrower's personal stake. A seller note can count if it's explicitly structured as 'full standby,' meaning all payments are deferred for the life of the SBA loan, and it is fully subordinated in repayment priority to the SBA loan. This is critical for the seller's note to be treated as quasi-equity.","example":"A buyer is purchasing a business for $1,000,000. They provide $50,000 in cash, and the seller agrees to a $50,000 standby note. This note must state that no payments of principal or interest will be made to the seller until the $900,000 SBA loan is fully repaid, and the note is legally subordinated.","what_lenders_check":"Lenders meticulously review the subordination agreement for the seller note. They ensure it explicitly states 'full standby' terms, including no payments for the SBA loan's full term, and that it is legally enforceable. Any deviation from these terms could jeopardize the equity injection calculation and the SBA guaranty.","required_facts":["Full standby","No principal payments","No interest payments","Life of SBA loan","Full subordination"],"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 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 standby note","url":"https://dealroom.so/glossary/seller-standby-note"},{"term":"Standby seller note","url":"https://dealroom.so/glossary/standby-seller-note"},{"term":"Seller's equity","url":"https://dealroom.so/glossary/seller-s-equity"},{"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"}],"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-specific-conditions-make-a-seller-s-standby-note-eligible-to-count-towards-my-equity-","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."]}