SBA 7(a) Q&A
Short answer
Yes, a seller note on full standby can accrue interest, but this interest cannot be paid until the SBA loan is fully repaid.
SBA policy allows seller notes to accrue interest during the standby period. However, neither principal nor interest payments can be made on the seller note until the SBA loan is satisfied, ensuring the SBA lender has first claim on cash flow.
A $200,000 seller note at 5% interest, fully subordinated for 10 years, will accrue $10,000 in interest annually. This $10,000 cannot be paid out each year but adds to the total amount owed to the seller at the end of the SBA loan term.
Lenders ensure the standby agreement explicitly states no payments (principal or interest) are made during the SBA loan term and that the seller fully understands and agrees to these terms to prevent future disputes.
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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