SBA 7(a) Q&A
Short answer
A seller note counting as equity injection must be on "full standby," meaning no principal or interest payments are made to the seller until the SBA loan is fully repaid.
The SBA requires seller notes used for equity injection to be on full standby for the life of the SBA loan. This means the seller cannot receive any payments from the business, neither principal nor interest, ensuring that the business's cash flow prioritizes repayment of the SBA-guaranteed loan.
If a $1,000,000 acquisition has a $100,000 seller note making up part of the 10% equity, the seller cannot receive any payments (principal or interest) from the business for the entire 10-year term of the SBA loan.
Insider move
Lenders meticulously verify the standby agreement to ensure strict compliance with SBA regulations, preventing any payments to the seller that could impair the business's ability to service the SBA debt.
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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