{"ok":true,"canonical_url":"https://dealroom.so/for-lenders/questions/what-specific-language-is-required-in-a-seller-note-s-subordination-agreement-to-ensure-it","api_url":"https://dealroom.so/api/public/questions/what-specific-language-is-required-in-a-seller-note-s-subordination-agreement-to-ensure-it","question":"What specific language is required in a seller note's subordination agreement to ensure it counts as full standby equity?","topic":"Standby agreements","audience":"lender","bot_mode":"lender","short_answer":"The subordination agreement must explicitly state that the seller note is on 'full standby,' meaning no payments of principal or interest are allowed for the full term of the SBA loan, or until the SBA loan is paid in full.","rule":"For a seller note to count as equity injection, it must be on 'full standby.' This requires a written agreement stipulating that all payments of principal and interest are deferred until the SBA loan is paid in full, or for the entire term of the SBA loan, whichever is shorter. The agreement must also subordinate the seller's lien (if any) to the SBA lender's lien.","example":"A seller note's subordination agreement includes a clause stating: 'No payments of principal or interest shall be made on the Seller Note for the entire term of the SBA Loan, or until the SBA Loan is paid in full, whichever occurs first. The Seller's lien is expressly subordinate to Lender's security interest.'","what_lenders_check":"Lenders must ensure the standby agreement precisely meets SBA requirements to properly count the seller note as equity. Any deviation, such as allowing interest payments or an early payment clause, will disqualify it as full standby equity and expose the lender to guaranty repair.","required_facts":["Full standby term","No principal payments","No interest payments","Subordination of lien","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 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":"Seller Note Subordination Agreement","url":"https://dealroom.so/glossary/seller-note-subordination-agreement"},{"term":"Seller note","url":"https://dealroom.so/glossary/seller-note"},{"term":"Subordination agreement","url":"https://dealroom.so/glossary/subordination-agreement"},{"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"}],"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-language-is-required-in-a-seller-note-s-subordination-agreement-to-ensure-it","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."]}