SBA 7(a) Q&A
Short answer
No, a seller note that is partially on standby, allowing any payments (principal or interest) before the SBA loan is repaid, cannot count towards the buyer's required equity injection.
To be recognized as equity injection by the SBA, a seller note must be on full standby, meaning no payments of principal or interest are permitted until the SBA loan is fully satisfied. Any arrangement for partial payments means the note does not provide true risk capital equivalent to equity.
A buyer needs $100,000 in equity. A seller offers a $50,000 note where $25,000 is on full standby, and $25,000 allows monthly payments. Only the $25,000 on full standby could potentially count, but the blended nature usually makes the entire note ineligible as standby equity. The buyer would still need to find alternative equity sources.
Insider move
Lenders require clear and unambiguous full standby documentation. A mixed-payment structure introduces complexity and undermines the essential 'no payments until the SBA loan is paid' principle, making it ineligible as equity.
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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