SBA 7(a) Q&A
Short answer
Yes, a seller note on full standby for an SBA 7(a) loan can accrue interest during the standby period. However, this accrued interest cannot be paid until the SBA loan is fully repaid.
SBA policy allows seller notes on full standby to be interest-bearing, but both principal and interest payments must be deferred until the SBA loan is paid in full. This ensures that the seller's claim does not interfere with the borrower's ability to repay the SBA loan.
If a seller provides a $100,000 note at 5% interest on full standby for a 10-year SBA loan, the interest will accrue annually. However, no principal or interest payments can be made to the seller until after the 10-year SBA loan is fully satisfied.
Insider move
Lenders verify that the standby agreement explicitly states that no principal or interest payments are allowed until the SBA loan is fully satisfied. They are concerned about any arrangement that could divert cash flow from the business to the seller before the SBA loan is repaid.
13 CFR Part 120 — Business Loans
Office of the Federal Register · Federal regulation
SOP 50 10 - Lender and Development Company Loan Programs
Last checked 2026-06-14. Official sources control — verify before relying on any rule for a live deal.
Last reviewed 2026-06-14 · SBA sources checked through 2026-06-14. 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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