For SBA lenders
Short answer
A seller's note on full standby must prohibit any payments of principal or interest until the SBA loan is fully repaid, and include specific language reflecting this non-payment clause.
For a seller's note to qualify as full standby, the standby agreement must explicitly state that no payments of principal or interest can be made on the seller's note for the entire term of the SBA loan. This ensures that the seller's capital remains in the business, strengthening its financial position and prioritizing repayment of the SBA-guaranteed loan.
A $200,000 seller note is part of an acquisition. The lender requires a standby agreement explicitly stating that 'no payments of principal or interest shall be made on this note until the SBA 7(a) loan is paid in full.' The agreement is signed by the seller and borrower.
Insider move
Lenders must ensure the standby agreement contains the precise language and terms required by the SBA. Incorrect or ambiguous language can render the standby agreement invalid, impacting the equity injection calculation and potentially leading to a guaranty denial.
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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