SBA 7(a) Q&A
Short answer
Yes, a seller note can be used in a partner buyout, and if it is to count towards the equity injection or reduce the SBA loan amount, it must be on full standby.
For a seller note to qualify as equity injection or reduce the required SBA loan amount, it must be on 'full standby.' This means no principal or interest payments can be made on the seller note until the SBA loan is fully repaid. This strengthens the borrower's position and reduces risk for the SBA.
If a $1,000,000 partner buyout includes a $100,000 seller note, that note must be on full standby for it to count as the required 10% equity injection. The remaining $900,000 would be financed by the SBA loan, with no payments made on the seller note until the SBA loan is satisfied.
Lenders require a clear standby agreement signed by the seller, explicitly stating no payments (principal or interest) will be made until the SBA loan is paid in full. They confirm the seller is not an affiliate and that the standby terms are legally enforceable.
13 CFR Part 120 — Business Loans
Office of the Federal Register · Federal regulation
SOP 50 10 — Lender and Development Company Loan Programs
U.S. Small Business Administration · SBA Standard Operating Procedure
Last checked 2026-06-15. Official sources control — verify before relying on any rule for a live deal.
Last reviewed 2026-06-15 · SBA sources checked through 2026-06-15. DealRoom analysis of the current SBA 7(a) rulebook for change-of-ownership / partner buyouts. 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 partner & owner buyout
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This page answers “Can a seller note be used to buy out a partner, and must it be on standby?” for SBA 7(a) business buyers — a short answer, the detail, and official sources — from DealRoom.so SBA Intelligence. It is general information, not legal, tax, or financial advice, and DealRoom is not a lender.
Source: DealRoom.so SBA Intelligence, based on public SBA, lender, franchise, FDIC, and related records. DealRoom is not a lender and does not guarantee financing.
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