SBA 7(a) Q&A
Short answer
A seller note on full standby is typically added back to the business's cash flow for purposes of calculating the debt service coverage ratio (DSCR).
When a seller note is on full standby, no payments (principal or interest) are made to the seller until the SBA loan is fully repaid. Because these funds are not expended from the business, they are treated as available cash flow, effectively improving the DSCR calculation and demonstrating stronger repayment ability for the SBA loan.
A business has $200,000 in cash flow available for debt service. It has a new SBA loan payment of $120,000 annually. If there's also a $30,000 annual seller note payment on full standby, the DSCR calculation would use $200,000 (actual cash flow) / $120,000 (SBA debt service) = 1.67x, not deducting the seller note.
Insider move
Lenders rely on the full standby agreement to accurately reflect the business's ability to service the SBA debt. They rigorously verify the standby terms to ensure the seller note truly does not require payment, thereby strengthening the DSCR.
13 CFR Part 120 — Business Loans
Office of the Federal Register · Federal regulation
SOP 50 10 - Lender and Development Company Loan Programs
Last checked 2026-06-13. 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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