SBA 7(a) Q&A
Short answer
A seller note can be partially on standby and partially paid out, but only the portion on full standby will count towards the buyer's equity injection.
For a seller note to count as equity, it must be on 'full standby,' meaning no payments of principal or interest are made until the SBA loan is fully repaid. If a portion is paid out or has a different repayment schedule, that portion does not count towards the required equity.
If a $150,000 seller note is structured as $100,000 on full standby and $50,000 payable over 12 months, only the $100,000 full standby portion would contribute to the buyer's equity injection requirement.
Insider move
Lenders carefully review seller note terms to ensure compliance with SBA's standby requirements. Any deviation from full standby for the equity-contributing portion can jeopardize the loan, as it impacts the true equity injection and the business's cash flow.
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 2026-06-13. 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.
More on seller notes & standby
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