For SBA lenders
Short answer
To demonstrate proper subordination of a seller note on full standby, the lender must obtain a written Standby Agreement executed by the seller, the borrower, and the lender, explicitly detailing the terms of subordination and prohibiting payments for the standby period.
A full standby agreement for a seller note means no payments of principal or interest can be made on the seller note for the entire term of the SBA loan, or a specified minimum period, to strengthen the borrower's cash flow. The agreement must clearly state these terms and be signed by all parties.
A $100,000 seller note is part of the equity injection for a $700,000 acquisition loan. The lender requires a full standby for the seller note's entire 10-year term. The Standby Agreement must clearly prohibit any principal or interest payments on the seller note for 10 years and be signed by the seller, buyer, and lender.
Insider move
Lenders must ensure the Standby Agreement is legally enforceable, covers the entire required standby period, and explicitly prohibits payments. Improper or missing standby documentation is a common reason for SBA guaranty repair or denial, as it directly impacts the borrower's ability to service the SBA loan.
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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