SBA 7(a) Q&A
Short answer
If a seller note on full standby is repaid without prior lender approval, it constitutes a material breach of the standby agreement and can jeopardize the SBA loan guaranty.
The standby agreement legally subordinates the seller's claim to the SBA loan, meaning no payments are permitted without lender consent. Unauthorized repayment demonstrates a failure to adhere to the loan terms and conditions, compromising the lender's collateral position and SBA's interest.
A business acquired with a $50,000 seller note on full standby makes a $20,000 payment to the seller without the lender's knowledge. This action would violate the standby agreement, potentially leading to a default on the SBA loan.
13 CFR Part 120 — Business Loans
Office of the Federal Register · Federal regulation
SOP 50 10 - Lender and Development Company Loan Programs
SOP 50 57 - 7(a) Loan Servicing and Liquidation
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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