SBA loan basics
Short answer
A standby seller note is when the seller of a business finances a portion of the purchase price, but agrees to not receive any payments until the SBA loan is fully repaid.
For a seller note to count towards the buyer's equity injection, it must be on 'full standby,' meaning no payments of principal or interest can be made to the seller until the SBA 7(a) loan is paid in full. This strengthens the buyer's equity position and reduces the business's immediate debt service.
A business is purchased for $1,000,000. The buyer injects $100,000 cash, an SBA loan covers $700,000, and the seller provides a $200,000 note. If this note is on full standby, the seller receives no payments until the $700,000 SBA loan is repaid.
Insider move
Lenders require a formal, written standby agreement signed by the seller. They ensure the terms strictly prohibit any payments (principal or interest) to the seller during the SBA loan's term, verifying it acts as true equity for underwriting purposes.
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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