{"ok":true,"canonical_url":"https://dealroom.so/for-lenders/questions/what-specific-financial-covenants-or-conditions-must-be-included-in-a-seller-note-on-full-","api_url":"https://dealroom.so/api/public/questions/what-specific-financial-covenants-or-conditions-must-be-included-in-a-seller-note-on-full-","question":"What specific financial covenants or conditions must be included in a seller note on full standby for a 7(a) acquisition loan?","topic":"Standby agreements","audience":"lender","bot_mode":"lender","short_answer":"A seller note on full standby must include provisions that prohibit any principal or interest payments to the seller for the entire term of the 7(a) loan, or a minimum of two years, whichever is shorter, and must be fully subordinated to the 7(a) loan.","rule":"For a seller note to qualify as 'full standby' and count towards equity injection, it must contain specific terms. The note must explicitly prohibit any principal or interest payments to the seller for the full term of the SBA loan, or for at least two years if the SBA loan term is longer. Crucially, the seller note must also be fully subordinated to the 7(a) loan in terms of lien position and right of payment, meaning the SBA loan takes precedence over any claims from the seller. This ensures the seller's financing truly acts as equity.","example":"A lender structures a 7(a) loan for a business acquisition that includes a $100,000 seller note. To qualify as full standby, the seller note explicitly states that no payments of principal or interest can be made for the 10-year term of the 7(a) loan, and includes a full subordination agreement subordinating it to the lender's loan.","what_lenders_check":"Lenders must meticulously review seller note standby agreements to ensure they meet all SBA requirements. Any deviation, such as allowing interest-only payments or insufficient subordination, can disqualify the seller note from counting as equity, leading to an ineligible loan and guaranty denial.","required_facts":["Seller note full standby","No principal payments","No interest payments","Full subordination","SBA loan term"],"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 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"},{"question":"How does a lender verify the full standby status of a non-SBA third-party debt?","url":"https://dealroom.so/for-lenders/questions/how-does-a-lender-verify-the-full-standby-status-of-a-non-sba-third-party-debt"}],"related_terms":[{"term":"Seller note on standby","url":"https://dealroom.so/glossary/seller-note-on-standby"},{"term":"Seller Financing on Full Standby","url":"https://dealroom.so/glossary/seller-financing-on-full-standby"},{"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":"Financial covenants","url":"https://dealroom.so/glossary/financial-covenants"},{"term":"Partial Standby Seller Note","url":"https://dealroom.so/glossary/partial-standby-seller-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":"2026-06-13","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-financial-covenants-or-conditions-must-be-included-in-a-seller-note-on-full-","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."]}