{"ok":true,"canonical_url":"https://dealroom.so/sba-7a/questions/what-specific-due-diligence-is-required-for-seller-financing-that-counts-as-equity-in-an-s","api_url":"https://dealroom.so/api/public/questions/what-specific-due-diligence-is-required-for-seller-financing-that-counts-as-equity-in-an-s","question":"What specific due diligence is required for seller financing that counts as equity in an SBA 7(a) loan?","topic":"Seller Financing Due Diligence","audience":"borrower","bot_mode":"buyer","short_answer":"Specific due diligence for seller financing includes a formal subordination agreement, verification that the seller note is on full standby, and confirmation of fair market interest rates.","rule":"For a seller note to count towards the equity injection, the lender must ensure it is fully subordinate to the SBA loan. This is formalized through a subordination agreement. Lenders also confirm that the interest rate and other terms are arm's length, even if payments are deferred.","example":"For a $100,000 seller note counting as equity on a $900,000 acquisition, the lender will require a signed Subordination Agreement clearly stating no payments until the SBA loan is repaid. They will also review the note's interest rate and maturity date.","what_lenders_check":"Lenders' primary concern is that the seller note truly represents at-risk equity and does not create a hidden liability that could compromise the SBA loan. Proper documentation and strict standby terms are critical.","required_facts":["Seller financing","Subordination agreement","Full standby","Fair market terms"],"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":[],"related_terms":[{"term":"Due diligence","url":"https://dealroom.so/glossary/due-diligence"},{"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"},{"term":"Heightened due diligence","url":"https://dealroom.so/glossary/heightened-due-diligence"},{"term":"Enhanced Due Diligence","url":"https://dealroom.so/glossary/enhanced-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/sba-7a/questions/what-specific-due-diligence-is-required-for-seller-financing-that-counts-as-equity-in-an-s","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."]}