For SBA lenders
Short answer
A seller note on "full standby" must be fully subordinated to the SBA loan, with no payments of principal or interest allowed until the SBA loan is repaid in full.
For a seller note to qualify as equity (full standby), it must be unsecured, subordinated in all respects to the SBA loan, and explicitly state that no payments of principal or interest are permitted until the SBA loan is paid in full. There can be no acceleration or prepayment, and the lender must obtain a written standby agreement from the seller.
A $100,000 seller note is structured as full standby. The standby agreement clearly states that the seller cannot receive any principal or interest payments until the $500,000 SBA loan is completely repaid, which is expected in 10 years.
13 CFR Part 120 — Business Loans
Office of the Federal Register · Federal regulation
7(a) Loan Program — Terms, Conditions, and Eligibility
U.S. Small Business Administration · Official SBA source
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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