SBA 7(a) Q&A
Short answer
If the seller note is intended to count as equity, it must be on full standby for the entire life of the SBA loan. Any payments within the first year would disqualify it from being equity.
To qualify as equity injection, a seller note must be on 'full standby,' meaning no principal or interest payments can be made by the business to the seller during the term of the SBA loan. Any deviation from this, especially early payments, disqualifies it as equity.
If the seller wants $50,000 of their $150,000 note repaid in the first year, only the remaining $100,000 (if structured on full standby) would be considered equity. This means you'd need to find another $50,000 in cash equity.
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.
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