SBA 7(a) Q&A
Short answer
No, if a seller's note allows interest-only payments during the first year of the SBA loan, it cannot be considered part of the required equity injection.
For a seller's note to count as equity injection, it must be on 'full standby' for a minimum of two years. This means absolutely no payments, neither principal nor interest, can be made to the seller during this initial standby period. Allowing interest-only payments would violate the full standby rule, making the note ineligible as equity.
A buyer's proposal includes a $75,000 seller note with terms for interest-only payments for the first 12 months. This note would not be allowed to count towards the buyer's equity injection because it's not on full standby, even if no principal is paid.
Lenders strictly enforce the 'full standby' rule to prevent any payments to the seller from draining the business's cash flow during the critical post-acquisition period. Any form of payment, including interest-only, indicates a reduced equity injection and increased risk to the SBA loan's repayment.
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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