For SBA lenders
Short answer
A seller note on full standby must be fully subordinated to the SBA loan's lien on all business assets, meaning the SBA loan has a first lien position.
SOP 50 10 requires that seller notes used for equity injection be fully subordinated, both in terms of payment priority and lien position. The SBA loan must have an unencumbered first lien position on all business assets, and any security interest taken by the seller must be junior to the SBA loan.
A seller provides a $150,000 full standby note. The lender ensures the seller executes a subordination agreement that expressly subordinates any security interest the seller might take in business assets to the lender's (and thus SBA's) first lien position.
Insider move
Lenders must ensure the subordination agreement is legally enforceable and properly recorded. Failure to obtain proper subordination of the seller's lien can jeopardize the SBA guaranty.
13 CFR Part 120 — Business Loans
Office of the Federal Register · Federal regulation
SOP 50 10 - Lender and Development Company Loan Programs
Standard 7(a) Authorization File Library
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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