For SBA lenders
Short answer
No, for a seller note on full standby, neither principal nor interest payments are permitted to be made to the seller during the standby period specified in the Standby Agreement.
A full standby agreement explicitly prohibits any payments of principal or interest on the subordinated debt to ensure the borrower's cash flow is entirely available to service the SBA loan. Any payment, including accrued interest, would violate the standby terms and jeopardize the SBA guaranty.
A $50,000 seller note is on full standby for five years for a $400,000 SBA loan. The note has an 8% interest rate. During the five-year standby period, no principal or interest payments can be made to the seller. The interest may accrue (if the agreement allows) but cannot be paid until the standby period ends.
Insider move
Lenders must ensure the Standby Agreement explicitly prohibits both principal and interest payments for the entire standby duration. Verifying that no payments are made throughout the loan's life is critical for servicing and for future guaranty purchase requests.
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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