For SBA lenders
Short answer
A seller note on full standby must prohibit any payments of principal or interest until the SBA loan is fully repaid, or for a minimum of two years, whichever is longer, and must be subordinated.
For a seller note to be on full standby and count towards equity injection, it must be unsecured and fully subordinated to the SBA loan. No payments of principal or interest may be made during the standby period, which extends until the SBA loan is paid in full, or for a minimum of two years from the date of final disbursement of the SBA loan, whichever is longer. Any violation of these terms jeopardizes the SBA guaranty.
A $100,000 seller note is part of a business acquisition. To qualify as full standby, the note must explicitly state no principal or interest payments will be made for at least two years or until the $500,000 SBA loan is repaid, and it must be legally subordinated to the SBA loan. If the note is for a three-year term, and the SBA loan repays in year 5, the note must be on standby until year 5.
Insider move
Lenders must meticulously review standby agreements to ensure strict compliance with SBA regulations. Any deviation, such as provisions for early payment or interest accrual and payment during the standby period, could invalidate the equity injection and lead to a guaranty repair or denial.
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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