SBA 7(a) Q&A
Short answer
Generally, no, the seller cannot receive any form of compensation from the acquired business if they have a full standby seller note, unless it's for arm's-length employment at a market rate.
The intent of a full standby agreement is to subordinate the seller's financial interest to the SBA loan. Any compensation beyond legitimate, arm's-length employment (where the seller is a bona fide employee paid a market-rate salary) is typically disallowed, as it could be seen as an indirect payment on the standby note or an excessive drain on the business's cash flow.
A seller provides a $100,000 full standby note. They cannot receive a 'consulting fee' of $2,000 per month. However, they could be hired as a part-time manager for a salary of $3,000 per month if it's a genuine position with market-rate pay and duties.
Insider move
Lenders scrutinize any post-acquisition arrangements with the seller, such as consulting agreements or salaries. They must ensure these arrangements are truly arm's-length, market-rate, and not a disguised way to circumvent the standby provisions, which could lead to a guaranty repair.
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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