SBA 7(a) Q&A
Short answer
Specific due diligence for seller financing includes a formal subordination agreement, verification that the seller note is on full standby, and confirmation of fair market interest rates.
For a seller note to count towards the equity injection, the lender must ensure it is fully subordinate to the SBA loan. This is formalized through a subordination agreement. Lenders also confirm that the interest rate and other terms are arm's length, even if payments are deferred.
For a $100,000 seller note counting as equity on a $900,000 acquisition, the lender will require a signed Subordination Agreement clearly stating no payments until the SBA loan is repaid. They will also review the note's interest rate and maturity date.
Lenders' primary concern is that the seller note truly represents at-risk equity and does not create a hidden liability that could compromise the SBA loan. Proper documentation and strict standby terms are critical.
13 CFR Part 120 — Business Loans
Office of the Federal Register · Federal regulation
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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