For SBA lenders
Short answer
Yes, a seller note on full standby can accrue interest during the SBA loan term, but no payments of that interest (or principal) can be made to the seller until the SBA loan is repaid.
The SBA's full standby requirement prohibits any payments of principal or interest on the seller note. However, the note can legally accrue interest, which would then be added to the principal balance and become payable only after the SBA 7(a) loan is satisfied, or at the end of a specific standby period if approved.
A $100,000 seller note on full standby carries a 6% annual interest rate. The lender ensures the standby agreement explicitly states that this interest will accrue but will not be paid until the 7(a) loan is paid in full.
Lenders must verify that the standby agreement clearly delineates between interest accrual and payment. Any clause allowing payment of accrued interest during the standby period would violate SBA rules and disqualify it as equity.
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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