For SBA lenders
Short answer
If a standby agreement is with an associate, the lender requires a formal, unconditional standby agreement, and must verify the associate is not directly or indirectly receiving funds from the SBA loan proceeds or the borrower to make payments.
A loan from an associate (e.g., family member, business partner not selling) that is intended to count towards equity injection must be placed on full standby, just like a seller note. This means no principal or interest payments are allowed during the 7(a) loan's term, and the debt is fully subordinated. Crucially, the lender must verify that the associate is not being reimbursed or compensated by the borrower from loan proceeds or business revenue for providing the standby funds, to prevent circumvention of equity rules.
A borrower's friend lends $50,000 for equity injection. The lender requires a formal standby agreement prohibiting all payments. Additionally, the lender monitors the borrower's accounts for any transfers to the friend that could be construed as repayment, ensuring the standby is genuine.
Insider move
Lenders must exercise extra vigilance when standby agreements involve associates, as there is a higher risk of undisclosed side agreements or indirect payments. Thorough documentation and monitoring are essential to ensure the standby is unconditional and fully compliant with SBA equity injection rules.
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.
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