For SBA lenders
Short answer
Lenders verify full standby status by obtaining a written standby agreement signed by the third-party creditor, borrower, and lender, explicitly stating no payments of principal or interest until the SBA loan is repaid.
For any non-SBA debt to be placed on full standby, the lender must obtain a formal, legally enforceable standby agreement. This agreement must unequivocally prohibit payments of both principal and interest on the junior debt for the entire term of the SBA-guaranteed loan. The lender must ensure the third-party creditor fully understands and agrees to these terms, as their commitment is critical to the business's capital structure.
A borrower has a pre-existing $100,000 note from an angel investor. The lender requires a fully executed standby agreement from the investor, explicitly stating that no payments will be made on that note until the 7(a) loan is paid in full, thereby verifying its full standby status.
Insider move
Lenders must ensure that any standby agreement for non-SBA debt is ironclad. Any ambiguity or potential for payment on the junior debt could be interpreted by SBA as a violation, affecting the borrower's equity calculation and jeopardizing the guaranty.
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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