SBA 7(a) Q&A
Short answer
A seller note counting as equity injection must be on full standby, meaning no payments of principal or interest can be made until the SBA loan is fully repaid.
For a seller note to be included in the equity injection calculation, it must be on 'full standby.' This means the seller cannot receive any principal or interest payments, or any other form of compensation, from the borrower or the acquired business until the SBA 7(a) loan is paid in full. This ensures the seller's funds are truly subordinate to the SBA loan.
A buyer purchases a business for $700,000 with a $70,000 (10%) cash injection. The seller provides a $30,000 note, which is placed on full standby for the life of the SBA loan, making the effective equity $100,000 or 14.3% ($70K cash + $30K seller note).
Lenders must ensure the standby agreement is legally binding and clearly prohibits any payments to the seller. They will also verify that the seller note is subordinate to the SBA loan in all respects and does not create an additional debt burden on the business.
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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