{"ok":true,"canonical_url":"https://dealroom.so/for-lenders/questions/what-specific-language-must-a-non-sba-third-party-standby-agreement-include-to-ensure-elig","api_url":"https://dealroom.so/api/public/questions/what-specific-language-must-a-non-sba-third-party-standby-agreement-include-to-ensure-elig","question":"What specific language must a non-SBA third-party standby agreement include to ensure eligibility?","topic":"Standby agreements","audience":"lender","bot_mode":"lender","short_answer":"A non-SBA third-party standby agreement must include explicit language prohibiting payments of principal and interest for a specified period, typically until the SBA loan is repaid or a specific date.","rule":"For a third-party loan to be treated as equity (or near-equity) for SBA purposes, a formal standby agreement is required. This agreement must clearly state that no payments of principal or interest will be made on the third-party debt for at least the full term of the SBA loan, or for a specified, extended period. This reinforces the business's capital base and prioritizes SBA loan repayment.","example":"A borrower's relative provides a $50,000 loan to the business. The lender requires a standby agreement stating, 'No payments of principal or interest shall be made on this $50,000 loan from [Relative's Name] for the entire 10-year term of the SBA loan.'","what_lenders_check":"Lenders must scrutinize third-party standby agreements for clarity, enforceability, and compliance with SBA requirements. Ambiguous language or a shorter standby period than required can negate the agreement's purpose and impact the borrower's equity calculation and overall eligibility.","required_facts":["No principal payments","No interest payments","Specified duration","Clear language","Third-party lender"],"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":"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":"Third-party loan","url":"https://dealroom.so/glossary/third-party-loan"},{"term":"Third-party agent","url":"https://dealroom.so/glossary/third-party-agent"},{"term":"Third-Party Report","url":"https://dealroom.so/glossary/third-party-report"},{"term":"Third-party appraisal","url":"https://dealroom.so/glossary/third-party-appraisal"},{"term":"Third-party debt","url":"https://dealroom.so/glossary/third-party-debt"},{"term":"Standby agreement","url":"https://dealroom.so/glossary/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-language-must-a-non-sba-third-party-standby-agreement-include-to-ensure-elig","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."]}