SBA 7(a) Q&A
Short answer
To count as equity, a seller note must be on 'full standby' for the entire term of the SBA loan, meaning no principal or interest payments can be made, and it must be fully subordinated to the SBA loan.
A seller note that contributes to the equity injection must be fully subordinated to the SBA loan, meaning the SBA loan takes priority. No payments on the seller note (principal or interest) are allowed for the life of the SBA loan, or at least two years if the SBA loan term is longer, without prior written consent from the SBA. This ensures the business's cash flow is prioritized for the SBA loan.
If a $50,000 seller note is used as part of the equity injection, the standby agreement must explicitly state that the seller will not receive any payments until the SBA 7(a) loan is fully satisfied, or until the end of the full standby period (e.g., 2 years).
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.
More on seller notes & standby
Terms in this answer
Pre-qualify your SBA 7(a) deal
Tell us the business, the price, and where you are — we'll point you to the lenders most likely to fund a deal like yours and flag anything that trips up approval.
Free · No documents · Usually same-day