SBA 7(a) Q&A
Short answer
A seller note, if on full standby, cannot be repaid until the SBA loan is paid in full. If on partial standby (rarely allowed for acquisitions), specific conditions and lender approval apply.
For a seller note to count as equity in an acquisition, it must be on 'full standby,' meaning no principal or interest payments are made until the SBA loan is fully repaid. This ensures the seller's funds remain in the business, bolstering its equity. Partial standby notes for acquisitions are generally not permitted by the SBA.
A seller provides a $100,000 full standby note for a $500,000 SBA acquisition loan. The seller receives no payments until the buyer fully repays the $500,000 SBA loan.
Insider move
Lenders strictly enforce full standby requirements for seller notes to protect the SBA's position and the business's equity. Any violation of the standby agreement could jeopardize the SBA guaranty.
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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