SBA 7(a) Q&A
Short answer
No, for a seller note to be on 'full standby,' both principal and interest payments must be deferred for the entire term of the SBA loan.
A full standby agreement means that no payments of any kind, whether principal or interest, can be made on the subordinated debt (the seller note) until the SBA 7(a) loan is paid in full. This ensures that all available cash flow from the business goes towards servicing the senior SBA debt first.
A seller provides a $100,000 note with a 5% interest rate, structured on full standby to the SBA 7(a) loan. While the interest may accrue, no actual interest payments can be made to the seller until the SBA loan is fully repaid. The accrued interest would be paid at the very end.
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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