For SBA lenders
Short answer
A full standby agreement prohibits any payment of principal or interest on the subordinated debt for the entire term of the SBA loan, and the debt cannot mature before the SBA loan.
Full standby means the subordinated creditor (e.g., a seller or affiliate) agrees to not receive any payments, whether principal or interest, from the borrower for the entire duration of the SBA loan. This effectively treats the standby debt as equity for cash flow purposes, strengthening the borrower's financial position.
A seller note for $150,000 is put on full standby. The standby agreement specifies that no payments will be made on the $150,000 note until the $500,000 SBA 7(a) loan is paid in full, and the seller cannot demand payment prior to that.
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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