{"ok":true,"canonical_url":"https://dealroom.so/for-lenders/questions/what-specific-due-diligence-is-required-for-seller-financing-in-a-change-of-ownership","api_url":"https://dealroom.so/api/public/questions/what-specific-due-diligence-is-required-for-seller-financing-in-a-change-of-ownership","question":"What specific due diligence is required for seller financing in a change of ownership?","topic":"Change of Ownership Underwriting","audience":"lender","bot_mode":"lender","short_answer":"Lenders must verify the source and terms of seller financing, ensure it meets SBA standby requirements, and confirm its proper lien position relative to the SBA loan.","rule":"When seller financing is part of a change of ownership, the lender must ensure that it functions as true equity injection if it's on full standby. This means no payments (principal or interest) can be made on the seller note for the life of the SBA loan. If not on full standby, it must be clearly subordinated and accounted for in cash flow analysis.","example":"A business acquisition includes a $100,000 seller note. The lender verifies the note is on full standby, meaning the seller agrees to receive no payments until the SBA loan is fully repaid. This also means the seller's lien (if any) is subordinated to the SBA loan.","what_lenders_check":"Lenders must obtain and review the seller note and the standby agreement to ensure compliance with SBA rules. Any deviation from standby terms or improper lien priority could jeopardize the SBA guaranty.","required_facts":[],"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":"How does the SBA evaluate goodwill in a business acquisition?","url":"https://dealroom.so/for-lenders/questions/how-does-the-sba-evaluate-goodwill-in-a-business-acquisition"},{"question":"What valuation method is required for an SBA 7(a) acquisition loan over $500,000?","url":"https://dealroom.so/for-lenders/questions/what-valuation-method-is-required-for-an-sba-7-a-acquisition-loan-over-500-000"},{"question":"Can an SBA 7(a) loan be used to finance a new partner buying into an existing business?","url":"https://dealroom.so/for-lenders/questions/can-an-sba-7-a-loan-be-used-to-finance-a-new-partner-buying-into-an-existing-business"}],"related_terms":[{"term":"Change in ownership","url":"https://dealroom.so/glossary/change-in-ownership"},{"term":"Due diligence","url":"https://dealroom.so/glossary/due-diligence"},{"term":"Change of ownership","url":"https://dealroom.so/glossary/change-of-ownership"},{"term":"Operational due diligence","url":"https://dealroom.so/glossary/operational-due-diligence"},{"term":"Legal due diligence","url":"https://dealroom.so/glossary/legal-due-diligence"},{"term":"Inadequate due diligence","url":"https://dealroom.so/glossary/inadequate-due-diligence"}],"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-due-diligence-is-required-for-seller-financing-in-a-change-of-ownership","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."]}