For SBA lenders
Short answer
A seller note with deferred principal but immediate interest payments *does not* qualify as full standby. Full standby requires no payments of either principal or interest for the specified standby period.
SBA defines full standby as a debt where no payments of principal *or* interest are made for the entire term of the SBA loan, or for at least two years (whichever is shorter, and often longer for acquisition loans). If interest payments are made, even with principal deferred, it is considered partial standby, which has different implications for equity injection and debt service coverage.
A seller agrees to a $75,000 note with principal deferred for two years, but interest payments beginning immediately. The lender would classify this as partial standby. If the intent was for it to count as equity injection, it would not qualify under full standby rules.
Insider move
Lenders must accurately classify seller notes as full or partial standby based on payment terms. Misclassifying a partial standby note as full standby, especially if it's meant to count as equity, could result in a finding of insufficient equity and 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 2026-06-13. 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.
More on standby agreements
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