SBA 7(a) Q&A
Short answer
The SBA verifies seller note terms through a formal Subordination Agreement signed by the seller, borrower, and lender, explicitly outlining its standby status.
For a seller note to qualify as equity, it must be fully subordinate to the SBA loan. This is formalized through a Subordination Agreement, which details the note's terms, including no payments of principal or interest until the SBA loan is repaid, and explicitly states it is on full standby.
For your $1,200,000 acquisition with a $120,000 seller note, the lender will draft a Subordination Agreement. The seller, you, and the lender will sign this agreement, confirming the note's full standby status and repayment terms.
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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