SBA 7(a) Q&A
Short answer
A seller note on full standby must typically remain on standby for the full term of the SBA loan, or at least until the SBA loan is repaid.
For a seller note to count towards the equity injection or be acceptable as a subordinated debt, it must be on 'full standby.' This means no payments of principal or interest can be made on the seller note until the SBA loan is repaid in full. This effectively makes the seller's claim subordinate to the SBA's, reducing risk.
A buyer obtains an SBA 7(a) loan with a 10-year term to purchase a business. The seller provides a $50,000 note on full standby. This $50,000 seller note cannot receive any payments, principal or interest, for the entire 10-year term of the SBA loan or until the SBA loan is satisfied.
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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