SBA 7(a) Q&A
Short answer
If the seller refuses to agree to the required standby terms for their note, the SBA loan application will likely be denied unless the buyer can replace that portion of the equity injection with other unencumbered funds.
For a seller note to count as equity injection, it must be on full standby, meaning no payments (principal or interest) can be made until the SBA loan is repaid. If the seller insists on payment terms that violate this, the note cannot count as equity, creating a shortfall in the buyer's required injection.
A buyer needs a $50,000 equity injection, with $30,000 coming from a seller note. If the seller refuses to put that $30,000 note on full standby, the buyer's equity injection falls short. The loan application would be denied unless the buyer can provide an additional $30,000 in cash.
Insider move
Lenders cannot approve a loan if the equity injection requirements are not met. A seller's refusal to accept full standby terms directly impacts this, forcing the lender to deny the loan unless an alternative, compliant equity source is found.
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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