SBA 7(a) Q&A
Short answer
If a departing partner holds a seller note, that note must be fully subordinated (full standby) to the SBA loan and cannot receive payments until the SBA loan is repaid, if it counts towards the equity injection.
Similar to any other seller note used in an acquisition, if a departing partner's note is intended to count towards the buyer's required equity injection, it must be on full standby. This means no principal or interest payments are permitted to the departing partner until the SBA loan is fully repaid. This ensures that the funds represented by the note are truly 'at risk' in the business and do not compete with the SBA loan's repayment.
You are buying out a partner for $200,000, and the required equity injection is $50,000. You contribute $25,000 cash, and the departing partner accepts a $25,000 seller note. This $25,000 note must be on full standby, meaning the partner cannot receive any payments until the SBA loan is paid off.
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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