For SBA lenders
Short answer
Premature repayment of a standby seller note without lender knowledge or approval is a material breach of the standby agreement, potentially jeopardizing the SBA guaranty and leading to a repair or denial.
A standby agreement is a critical component of the equity injection for many acquisitions, ensuring the seller's funds remain in the business. Any payment on a standby note before the SBA loan is repaid constitutes a breach, indicating a failure to adhere to the agreed-upon equity structure and can result in significant consequences for the lender's guaranty.
A $200,000 seller note is on full standby for a 7(a) acquisition loan. The borrower, without informing the lender, makes a $50,000 principal payment to the seller during the SBA loan term. If discovered, this could result in a repair to the lender's guaranty for that amount.
13 CFR Part 120 — Business Loans
Office of the Federal Register · Federal regulation
SOP 50 10 - Lender and Development Company Loan Programs
SOP 50 57 - 7(a) Loan Servicing and Liquidation
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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