For SBA lenders
Short answer
A standby agreement for an investor loan counting as equity must explicitly state full subordination to the SBA loan, no payments (principal or interest) until the SBA loan is paid in full, and a lien subordination.
For an investor loan to be treated as equity for SBA purposes, it must be on 'full standby.' This means the agreement must contain specific language ensuring no payments of principal or interest are made on the investor loan, and no collateral is taken, until the SBA loan is fully satisfied. It must also prohibit acceleration of the investor loan for any reason.
An investor provides a $100,000 loan to the borrower as part of the equity injection. The lender drafts a standby agreement stating the loan is fully subordinated to the SBA 7(a) loan, with no payments of principal or interest allowed, and no security interest taken by the investor, until the SBA loan is paid in full.
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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