For SBA lenders
Short answer
A full standby seller note must be on standby for the entire term of the SBA 7(a) loan, meaning no payments can be made until the SBA loan is fully repaid.
For a seller note to count towards the buyer's equity injection and enhance the project's viability, it must be on 'full standby.' This means both principal and interest payments are prohibited from being made to the seller for the entire life of the SBA 7(a) loan, ensuring that all available cash flow prioritizes the SBA debt.
A borrower acquires a business with a $1,000,000 SBA loan with a 10-year term and a $100,000 seller note. The seller note must be on full standby for all 10 years, with no payments to the seller until the $1,000,000 SBA loan is repaid.
Insider move
Lenders must ensure the standby agreement explicitly states the full term of standby for both principal and interest, matching the SBA loan term. Any deviation or ambiguity could lead to a guaranty repair or denial if the seller note is paid prematurely.
13 CFR Part 120 — Business Loans
Office of the Federal Register · Federal regulation
SOP 50 10 - Lender and Development Company Loan Programs
Standard 7(a) Authorization File Library
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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