{"ok":true,"canonical_url":"https://dealroom.so/sba-7a/questions/what-specific-conditions-must-a-seller-note-meet-to-count-as-equity-injection-for-an-sba-7","api_url":"https://dealroom.so/api/public/questions/what-specific-conditions-must-a-seller-note-meet-to-count-as-equity-injection-for-an-sba-7","question":"What specific conditions must a seller note meet to count as equity injection for an SBA 7(a) loan?","topic":"Seller notes & standby","audience":"borrower","bot_mode":"buyer","short_answer":"To count as equity, a seller note must be on 'full standby' for the entire term of the SBA loan, meaning no principal or interest payments can be made, and it must be fully subordinated to the SBA loan.","rule":"A seller note that contributes to the equity injection must be fully subordinated to the SBA loan, meaning the SBA loan takes priority. No payments on the seller note (principal or interest) are allowed for the life of the SBA loan, or at least two years if the SBA loan term is longer, without prior written consent from the SBA. This ensures the business's cash flow is prioritized for the SBA loan.","example":"If a $50,000 seller note is used as part of the equity injection, the standby agreement must explicitly state that the seller will not receive any payments until the SBA 7(a) loan is fully satisfied, or until the end of the full standby period (e.g., 2 years).","what_lenders_check":"Lenders verify that the standby agreement is explicitly documented, legally binding, and clearly subordinates the seller's claim to the SBA loan. Any deviation could result in the note not counting as equity or impairing the SBA guaranty.","required_facts":["Full standby","Subordination","No payments","SBA loan term"],"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 note","url":"https://dealroom.so/glossary/seller-note"},{"term":"Equity injection","url":"https://dealroom.so/glossary/equity-injection"},{"term":"Seller standby note","url":"https://dealroom.so/glossary/seller-standby-note"},{"term":"Subordinated Seller Note","url":"https://dealroom.so/glossary/subordinated-seller-note"},{"term":"Standby seller note","url":"https://dealroom.so/glossary/standby-seller-note"},{"term":"Minimum Equity Injection","url":"https://dealroom.so/glossary/minimum-equity-injection"}],"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-must-a-seller-note-meet-to-count-as-equity-injection-for-an-sba-7","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."]}