For SBA lenders
Short answer
No, a seller note on partial standby cannot count towards the borrower's minimum equity injection requirement for a 7(a) loan.
For a seller note to qualify as equity injection, it must be on 'full standby,' meaning no principal or interest payments can be made for the entire term of the SBA loan. A 'partial standby' note, which allows for some payments (e.g., interest-only or deferred principal for a period), is considered debt and does not contribute to the borrower's equity calculation.
A borrower needs $100,000 equity. They have $70,000 cash and the seller offers a $30,000 note on partial standby (interest-only payments for 2 years). The $30,000 cannot count as equity, leaving the borrower with a $30,000 equity shortfall.
Insider move
Lenders must carefully review the terms of all seller notes. Incorrectly classifying a partial standby note as equity can lead to an eligibility issue and a guaranty repair or denial.
13 CFR Part 120 — Business Loans
Office of the Federal Register · Federal regulation
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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