SBA loan basics
Short answer
Yes, a seller note can count towards the buyer's equity injection (down payment) for an SBA 7(a) acquisition loan, but it must be on full standby for the entire term of the SBA loan.
For a seller note to count as equity, it must be on 'full standby,' meaning no principal or interest payments can be made on it until the SBA loan is fully repaid. This ensures that the business's cash flow is prioritized for the SBA loan.
A buyer is acquiring a business for $1 million and needs a 10% equity injection ($100,000). The buyer contributes $50,000 in cash, and the seller provides a $50,000 note, which is placed on full standby for the 10-year term of the SBA loan. This structure fulfills the equity requirement.
Insider move
Lenders must ensure the standby agreement is properly documented and legally enforceable, explicitly stating that no payments will be made on the seller note until the SBA loan is satisfied, to protect the SBA's position.
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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