SBA 7(a) Q&A
Short answer
For a seller note to count toward equity injection, it generally requires 'full standby' without principal or interest payments.
The SBA's default requirement for seller notes counting as equity is full standby, meaning no payments until the SBA loan is fully repaid. In rare, specific circumstances, the SBA may allow 'partial standby,' where only principal payments are deferred, or payments are allowed if certain debt service coverage ratios are met, but these are exceptions and require SBA approval.
If a buyer's cash injection is below 10%, a seller note on partial standby (e.g., interest-only payments allowed) generally would not fulfill the equity injection requirement. A full standby note, deferring all payments, would be necessary.
Lenders prefer full standby for clarity and to meet equity injection requirements. Any deviation from full standby needs strong justification and explicit SBA approval, which complicates underwriting and approval.
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 2026-06-14. 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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