For SBA lenders
Short answer
Yes, a full standby seller note can accrue interest during the standby period, but this interest cannot be paid out until the full standby period has ended and the SBA loan is current.
Under a full standby agreement, no principal or interest payments can be made on the seller note for the duration of the standby period, typically for the term of the SBA loan or a specified minimum period (e.g., 24 months). Accrued interest is added to the principal balance and becomes payable only after the standby period ends.
A $100,000 seller note is on full standby for 24 months. It accrues 5% interest annually. After 24 months, the principal balance would be approximately $110,250, and payments would then commence on this higher balance, provided the SBA loan is current.
Lenders must ensure the standby agreement explicitly states that no payments of principal or interest will be made during the standby period and that any accrued interest is clearly handled. Improper payments could jeopardize the SBA guaranty.
13 CFR Part 120 — Business Loans
Office of the Federal Register · Federal regulation
7(a) Loan Program — Terms, Conditions, and Eligibility
U.S. Small Business Administration · Official SBA source
SOP 50 10 - Lender and Development Company Loan Programs
Last checked 2026-06-13. Official sources control — verify before relying on any rule for a live deal.
Last reviewed 2026-06-13 · SBA sources checked through 2026-06-13. DealRoom analysis of public SBA 7(a) lending records (FY2020–present). Grounded in the current SBA rulebook; verify against the official sources above before relying on it for a live deal. Not legal, tax, or financial advice, and not an approval decision.
More on standby agreements
Terms in this answer
Pre-qualify your SBA 7(a) deal
Tell us the business, the price, and where you are — we'll point you to the lenders most likely to fund a deal like yours and flag anything that trips up approval.
Free · No documents · Usually same-day