For SBA lenders
Short answer
No, a seller note with deferred principal payments but that still accrues interest (even if no payments are made) typically does not qualify as full standby for equity injection, as full standby requires no payment of principal or interest.
For seller financing to count as equity injection, it must be on 'full standby,' meaning absolutely no payments of principal or interest are made to the seller for the entire term of the SBA loan. If interest accrues, even if deferred, it creates a growing liability that the SBA views as potentially compromising the borrower's ability to repay the SBA loan. Such a note would generally be treated as regular debt, not equity.
A seller provides a $100,000 note with a 5-year deferral of principal payments, but interest at 5% accrues annually and is payable at maturity. This note would not be considered 'full standby' because interest is accruing, creating an obligation that grows over time. The lender would not be able to count this $100,000 towards the borrower's equity injection.
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.
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