For SBA lenders
Short answer
A seller note on partial standby means that a portion of the principal and/or interest payments can be made, but only in agreement with the SBA lender's terms. It must be subordinate to the SBA loan, with no payments made if the SBA loan is not current.
For a seller note to qualify as partial standby, the lender must execute a full or partial standby agreement with the seller. A partial standby allows the seller to receive payments on their note, but these payments are typically limited and explicitly conditioned upon the SBA loan remaining current. The SBA loan always takes priority in repayment, and any breach of the standby agreement can result in a guaranty repair.
For a $1 million acquisition, the buyer injects 10% cash, and the seller provides a $100,000 note. The lender agrees to a partial standby allowing interest-only payments to the seller for the first year, but only if the SBA loan remains current and debt service coverage ratios are met.
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.
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