For SBA lenders
Short answer
Yes, a full standby seller note can be interest-bearing if the interest payments are fully deferred and do not begin accruing or being paid until the SBA 7(a) loan has been fully repaid.
For a seller note to qualify as full standby equity, no principal or interest payments can be made until the SBA loan is paid in full. However, the note can accrue interest during the standby period, provided those accrued interest payments are also deferred and only become due after the SBA loan is satisfied. The deferred interest amount must not unduly burden the borrower at the time of repayment.
A seller note for $100,000 is on full standby, accruing 5% interest annually. The standby agreement specifies that both principal and accrued interest will only be paid once the SBA loan is fully satisfied. The lender confirms this deferral language in the standby agreement to allow the note to count as equity.
Insider move
Lenders must ensure the full standby agreement explicitly defers all interest payments (both accrual and disbursement) until after the SBA loan is repaid. They need to verify that the accrued interest, when eventually due, will not create an unmanageable debt burden for the borrower or conflict with the SBA's lien position.
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
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