For SBA lenders
Short answer
Lenders must exclude both principal and interest payments on the full standby seller note from the pro forma debt service calculation, as these payments cannot be made until the SBA loan is fully repaid.
A seller note on 'full standby' means no principal or interest payments can be made until the SBA 7(a) loan is paid in full. Therefore, for cash flow analysis, the lender must treat the seller note's payments as if they do not exist for the duration of the SBA loan, effectively boosting the apparent debt service coverage ratio for underwriting purposes.
A $1.5M acquisition includes a $150,000 seller note on full standby. The annual principal and interest on this seller note would normally be $20,000. For the SBA loan underwriting, the lender performs cash flow projections and calculates the debt service coverage ratio, entirely excluding the $20,000 annual payment on the seller note from the business's expenses.
Insider move
Lenders must ensure the standby agreement is properly executed and prohibits payments for the entire SBA loan term. Failure to correctly account for standby debt in cash flow projections can lead to an inflated debt service coverage ratio, indicating a weaker borrower than justified, risking a guaranty repair.
13 CFR Part 120 — Business Loans
Office of the Federal Register · Federal regulation
SOP 50 10 - Lender and Development Company Loan Programs
Last checked 2026-06-14. Official sources control — verify before relying on any rule for a live deal.
Last reviewed 2026-06-14 · SBA sources checked through 2026-06-14. 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.
More on change-of-ownership underwriting
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