For SBA lenders
Short answer
Yes, a partial standby seller note can include a provision for interest-only payments during the standby period, but no principal payments are allowed until the SBA loan is fully repaid.
With a partial standby agreement, the seller note may allow for interest-only payments during the SBA loan's term. However, all principal payments on the seller note must be explicitly subordinated and deferred until the SBA loan is fully repaid. The lender must ensure the interest payments are sustainable and do not impair the borrower's ability to service the SBA debt.
A borrower secures a $600,000 SBA loan. A $100,000 seller note is on partial standby, allowing for $500 monthly interest payments. The lender ensures the partial standby agreement explicitly prohibits principal repayment until the SBA loan is satisfied and verifies the business's cash flow can comfortably support both the SBA loan and the seller note's interest.
Insider move
Lenders must meticulously review partial standby agreements to confirm no principal payments are made during the SBA loan's term. They also need to assess the financial impact of interest-only payments on the borrower's cash flow, ensuring it doesn't compromise the ability to repay the SBA loan. Any deviation can lead to a guaranty repair.
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.
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