SBA 7(a) Q&A
Short answer
If a seller's note is only partially on standby, the portion not on full standby is treated as business debt and must be factored into the business's debt service capacity.
For a seller note to count towards the buyer's equity injection, it must be on full standby, meaning no principal or interest payments are made during the SBA loan term. Any portion allowing payments is considered an additional liability that reduces the business's ability to repay the SBA loan.
If you buy a $1,000,000 business with a $100,000 cash injection and a $100,000 seller note. If $50,000 of that seller note is on full standby (counting towards equity) but the other $50,000 allows payments, then that $50,000 payment obligation will be added to the business's debt burden, requiring sufficient cash flow to cover it in addition to the SBA loan.
Insider move
Lenders need clear standby agreements. Any payments on a seller note, even if only partial, are scrutinized to ensure the business's cash flow can comfortably support both the SBA loan and the seller's payments.
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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