Glossary
Standby agreement
On this page4 sections
What it is
A standby agreement subordinates a seller's note to the SBA loan — the seller agrees not to be paid, and not to enforce, while the SBA loan is outstanding.
What full standby actually requires
The term does more work than most sellers expect when they first hear it. On full standby, no payments of principal or interest are made for the term of the 7(a) loan [1] .
Read that carefully. Not deferred for a year. Not interest-only. No payments at all, for the life of the loan — which on an acquisition loan is commonly ten years. A seller agreeing to full standby is agreeing to wait a decade.
Why a buyer wants one
Because a note on full standby can count toward the buyer's equity injection — but only up to half of the required injection [1] . The other half must be real cash. That cap is what stops a standby note from being a route to a no-cash deal.
How to raise it with a seller
Directly, and early. A seller who agrees to a seller note in principle and discovers the standby terms at documentation stage is a seller who may withdraw. The honest framing is that this is not the buyer's preference but the condition on which that portion of the note counts at all.
See seller financing and the equity injection guide.
Frequently asked questions
What does full standby actually mean?
No payments of principal or interest for the term of the 7(a) loan. Not deferred for a year, not interest-only. On a typical ten-year acquisition loan, a seller agreeing to full standby is agreeing to wait a decade. Sellers routinely agree to a seller note in principle and then balk when they read this.
Does the standby debt still earn interest?
Yes, and this is the part worth telling a seller who has just heard 'no payments' and stopped listening. The SOP provides that standby debt may accrue interest, which may be added to the standby debt and amortised after the 7(a) loan is paid in full. The money is deferred, not forgiven.
What else does the standby creditor give up?
Priority and remedies. The standby creditor must subordinate any lien rights in the collateral to the lender's rights, and take no action against the borrower or the collateral without the lender's consent. A seller expecting to accelerate on a missed payment should understand that before signing.
Sources cited on this page
Every mutable number on this page — program caps, tax rules, thresholds, filing deadlines — traces to one of these primary sources. Rules change; check the source before you act on the number.
- 1 U.S. Small Business Administration. SOP 50 10 8.1 — Appendix 15: 7(a) Changes of Ownership. https://www.sba.gov/document/sop-50-10-lender-development-company-loan-programs
Educational only — not legal, tax, lending, or investment advice. Confirm specific rules, rates, and forms with the relevant New York State agency, attorney, CPA, lender, or insurer before acting. See the editorial policy and methodology for how sourcing and review work.