{"ok":true,"canonical_url":"https://dealroom.so/for-lenders/questions/what-specific-documentation-and-conditions-are-required-if-a-standby-agreement-is-with-an-","api_url":"https://dealroom.so/api/public/questions/what-specific-documentation-and-conditions-are-required-if-a-standby-agreement-is-with-an-","question":"What specific documentation and conditions are required if a standby agreement is with an associate of the borrower, not the seller?","topic":"Standby agreements","audience":"lender","bot_mode":"lender","short_answer":"If a standby agreement is with an associate, the lender requires a formal, unconditional standby agreement, and must verify the associate is not directly or indirectly receiving funds from the SBA loan proceeds or the borrower to make payments.","rule":"A loan from an associate (e.g., family member, business partner not selling) that is intended to count towards equity injection must be placed on full standby, just like a seller note. This means no principal or interest payments are allowed during the 7(a) loan's term, and the debt is fully subordinated. Crucially, the lender must verify that the associate is not being reimbursed or compensated by the borrower from loan proceeds or business revenue for providing the standby funds, to prevent circumvention of equity rules.","example":"A borrower's friend lends $50,000 for equity injection. The lender requires a formal standby agreement prohibiting all payments. Additionally, the lender monitors the borrower's accounts for any transfers to the friend that could be construed as repayment, ensuring the standby is genuine.","what_lenders_check":"Lenders must exercise extra vigilance when standby agreements involve associates, as there is a higher risk of undisclosed side agreements or indirect payments. Thorough documentation and monitoring are essential to ensure the standby is unconditional and fully compliant with SBA equity injection rules.","required_facts":["Associate relationship","Full standby agreement","No repayment terms","Fund source verification","No indirect payments"],"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 documentation must a lender obtain to ensure a seller note is fully on standby and subordinated to the SBA 7(a) loan?","url":"https://dealroom.so/for-lenders/questions/what-documentation-must-a-lender-obtain-to-ensure-a-seller-note-is-fully-on-standby-and-su"},{"question":"What specific financial covenants or conditions must be included in a seller note on full standby for a 7(a) acquisition loan?","url":"https://dealroom.so/for-lenders/questions/what-specific-financial-covenants-or-conditions-must-be-included-in-a-seller-note-on-full-"},{"question":"What specific language must a standby agreement for a seller note include to meet SBA 7(a) requirements for equity injection?","url":"https://dealroom.so/for-lenders/questions/what-specific-language-must-a-standby-agreement-for-a-seller-note-include-to-meet-sba-7-a-"},{"question":"What is the impact on an SBA 7(a) loan if a seller note on full standby is repaid prematurely without the lender's knowledge?","url":"https://dealroom.so/for-lenders/questions/what-is-the-impact-on-an-sba-7-a-loan-if-a-seller-note-on-full-standby-is-repaid-premature"},{"question":"What are the specific SBA requirements for a seller's note to be on full standby?","url":"https://dealroom.so/for-lenders/questions/what-are-the-specific-sba-requirements-for-a-seller-s-note-to-be-on-full-standby"},{"question":"What specific language must a non-SBA third-party standby agreement include to ensure eligibility?","url":"https://dealroom.so/for-lenders/questions/what-specific-language-must-a-non-sba-third-party-standby-agreement-include-to-ensure-elig"}],"related_terms":[{"term":"Standby agreement","url":"https://dealroom.so/glossary/standby-agreement"},{"term":"Lease with an option to purchase","url":"https://dealroom.so/glossary/lease-with-an-option-to-purchase"},{"term":"Associate Relationship","url":"https://dealroom.so/glossary/associate-relationship"},{"term":"Seller standby agreement","url":"https://dealroom.so/glossary/seller-standby-agreement"},{"term":"Partial Standby Agreement","url":"https://dealroom.so/glossary/partial-standby-agreement"},{"term":"Full Standby Agreement","url":"https://dealroom.so/glossary/full-standby-agreement"}],"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-documentation-and-conditions-are-required-if-a-standby-agreement-is-with-an-","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."]}