For SBA lenders
Short answer
A full standby agreement must explicitly state that no principal or interest payments are permitted on the subordinated debt for the entire term of the SBA loan, and the debt is unsecured.
The SBA requires clear and unambiguous language in full standby agreements. It must prohibit any payment of principal or interest on the subordinated debt (including a seller note) during the entire term of the SBA loan, and it must confirm that the standby debt is unsecured and subordinate to the SBA loan. The agreement must be signed by the lender, borrower, and the creditor on standby.
A lender drafts a full standby agreement for a seller note stating: 'The Undersigned (Seller) hereby agrees that no payment of principal or interest shall be made on the Subordinated Debt to the Undersigned by the Borrower or any other party for the entire term of the SBA Loan, and this Subordinated Debt shall be unsecured and subordinate in all respects to the SBA Loan.'
Insider move
Ambiguous or incomplete standby language can render the agreement unenforceable by the SBA, potentially leading to a guaranty repair. Lenders should use SBA-approved templates or consult legal counsel.
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
Terms in this answer
Pre-qualify your SBA 7(a) deal
Tell us the business, the price, and where you are — we'll point you to the lenders most likely to fund a deal like yours and flag anything that trips up approval.
Free · No documents · Usually same-day