For SBA lenders
Short answer
A seller note on partial standby, where some payments are deferred and others are made, must have the deferred portion treated as equity for DSCR calculation, while the payable portion is treated as debt.
If a seller note is partially on standby, only the portion that is on full standby (no payments of principal or interest) can be considered equity for debt service coverage purposes. Any portion that is being paid, even if deferred for a short period, must be factored into the debt service calculation.
A $100,000 seller note states $50,000 is on full standby for 24 months, and the remaining $50,000 is paid monthly starting at closing. For DSCR, the $50,000 fully on standby would be ignored, but the monthly payments on the other $50,000 would be included in the total debt service.
13 CFR Part 120 — Business Loans
Office of the Federal Register · Federal regulation
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.
More on standby agreements
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