SBA 7(a) Q&A
Short answer
No, a seller note used for equity injection must be on "full standby," meaning no principal or interest payments can be made by the business for the entire term of the SBA loan.
The SBA's "full standby" requirement for seller notes counting as equity prohibits any payments, whether principal or interest, from the business to the seller during the SBA loan's life. This ensures that the business's cash flow is entirely available to service the SBA debt.
If a seller note contributes to the 10% equity, even if it's structured for interest-only payments initially, the lender will require it to be fully subordinated with no payments until the SBA loan is fully satisfied.
Insider move
Lenders will not approve a seller note with any payment schedule, including interest-only, if it is intended to count towards the borrower's equity injection, as this directly violates the full standby rule.
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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