SBA 7(a) Q&A
Short answer
Generally, if a seller note is intended to count towards the buyer's equity injection, it must be on 'full standby' meaning no principal or interest payments are made until the SBA loan is repaid.
A seller note on 'full standby' cannot receive any payments of principal or interest from the business or borrower until the SBA loan is fully satisfied. If the seller note receives principal payments, even if subordinate, it typically cannot be counted as equity injection because it represents an ongoing debt obligation rather than an owner's contribution.
A buyer purchases a $700,000 business, requiring a $70,000 equity injection. The seller offers a $70,000 note with principal payments deferred for two years, but then commencing. Because principal payments will occur, this note would not qualify as full standby and the buyer would need other equity.
Insider move
Lenders scrutinize the terms of all seller notes to ensure compliance with SBA standby requirements. Any provision for principal or interest payments on a note intended as equity injection will lead to its disqualification unless it is fully subordinate for the life of the SBA loan.
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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