{"ok":true,"canonical_url":"https://dealroom.so/sba-7a/questions/what-specific-language-must-a-seller-note-contain-to-qualify-as-full-standby","api_url":"https://dealroom.so/api/public/questions/what-specific-language-must-a-seller-note-contain-to-qualify-as-full-standby","question":"What specific language must a seller note contain to qualify as full standby?","topic":"Seller notes & standby","audience":"borrower","bot_mode":"buyer","short_answer":"A seller note must explicitly state that all payments of principal and interest are fully subordinated to the SBA 7(a) loan and cannot be made until the SBA loan is paid in full. It must also prohibit any changes to these terms without the SBA lender's written consent.","rule":"The SBA requires very precise language in standby agreements to ensure the seller note poses no risk to the SBA loan's repayment. The note must clearly state that all payments are deferred and subordinated, and that neither the terms nor the note itself can be assigned or altered without lender approval.","example":"The seller note for $75,000 must include a clause like: 'All payments of principal and interest under this note are hereby subordinated to the loan made by [Lender Name] to [Borrower Name] guaranteed by the U.S. Small Business Administration (SBA). No payments shall be made on this note until the SBA loan is paid in full.'","what_lenders_check":"Lenders rigorously review standby agreements to ensure they meet SBA requirements. Any ambiguity or deviation from the specified language can lead to the note being considered ineligible as equity or even jeopardizing the SBA guaranty.","required_facts":["Full subordination","Principal and interest deferral","SBA loan paid in full","No alteration clause","Lender consent"],"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":"If a seller takes a fully subordinated note, can they remain an employee or consultant after acquisition?","url":"https://dealroom.so/sba-7a/questions/if-a-seller-takes-a-fully-subordinated-note-can-they-remain-an-employee-or-consultant-afte"},{"question":"For a $900,000 business acquisition, what percentage of the total required equity injection can come from a fully subordinated seller note?","url":"https://dealroom.so/sba-7a/questions/for-a-900-000-business-acquisition-what-percentage-of-the-total-required-equity-injection-"},{"question":"Can a seller who takes a fully subordinated note also remain an employee or consultant of the business after the acquisition?","url":"https://dealroom.so/sba-7a/questions/can-a-seller-who-takes-a-fully-subordinated-note-also-remain-an-employee-or-consultant-of-"},{"question":"How does an earn-out provision affect an SBA 7(a) loan for a business acquisition?","url":"https://dealroom.so/sba-7a/questions/how-does-an-earn-out-provision-affect-an-sba-7-a-loan-for-a-business-acquisition"},{"question":"What is the minimum term duration a seller note must be on full standby for an SBA loan?","url":"https://dealroom.so/sba-7a/questions/what-is-the-minimum-term-duration-a-seller-note-must-be-on-full-standby-for-an-sba-loan"},{"question":"Can interest be accrued and paid on a seller note while it is on full standby?","url":"https://dealroom.so/sba-7a/questions/can-interest-be-accrued-and-paid-on-a-seller-note-while-it-is-on-full-standby"}],"related_terms":[{"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":"Seller note on standby","url":"https://dealroom.so/glossary/seller-note-on-standby"},{"term":"Partial Standby Seller Note","url":"https://dealroom.so/glossary/partial-standby-seller-note"},{"term":"Standby Note","url":"https://dealroom.so/glossary/standby-note"},{"term":"Seller note","url":"https://dealroom.so/glossary/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":"2026-06-14","sba_rule_sources_checked_through":"2026-06-14"},"citation":{"label":"DealRoom.so SBA 7(a) Q&A","url":"https://dealroom.so/sba-7a/questions/what-specific-language-must-a-seller-note-contain-to-qualify-as-full-standby","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."]}