SBA 7(a) Q&A
Short answer
No, a seller note that pays interest from day one, even with deferred principal, does not typically qualify as full standby for SBA 7(a) loan purposes.
For a seller note to count towards the equity injection and be considered 'full standby,' it generally must prohibit both principal and interest payments for the entire term of the SBA 7(a) loan. If interest payments begin immediately, it is considered 'partial standby' at best, which may not satisfy the equity requirement.
A buyer needs a $50,000 seller note on full standby to meet their equity. The seller offers a $50,000 note with principal deferred for 7 years but with 5% interest payable monthly from closing. This note would not be considered full standby and would therefore not count towards the buyer's equity injection.
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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