SBA loan basics
Short answer
A "seller note on standby" means the seller agrees to defer payments on their portion of the financing until the SBA 7(a) loan is fully repaid, effectively acting as additional equity.
For a seller note to count towards the borrower's equity injection, it must be on "full standby." This means the seller cannot receive any payments (principal or interest) from the business for the entire term of the SBA loan. This arrangement strengthens the borrower's equity position.
A business is acquired for $1,000,000, with $100,000 from the buyer, $700,000 from an SBA loan, and $200,000 from a seller note. For the seller note to count as equity, the seller cannot receive payments on the $200,000 until the $700,000 SBA loan is repaid.
Lenders verify that the seller note is fully subordinated to the SBA loan, with no payments to the seller during the SBA loan term. They require a formal subordination agreement.
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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