Can a seller note count toward the SBA 10% down payment?

What does "full standby" mean?

Full standby means the seller is paid nothing on the note, neither principal nor interest, for as long as the SBA loan is outstanding. The business portion of an acquisition loan amortizes over a maximum of 10 years. So a full-standby note can mean a seller waits up to 10 years for the first payment, unless the SBA loan is paid off sooner.

A note that pays anything during the SBA loan is not on full standby. It does not count toward the injection. The lender includes its payments in debt service coverage, at a maximum 10-year amortization.

Ask your lender two questions about any standby note: whether interest may accrue during standby, and how and when the note can be paid after. Reports on the new rules say the seasoning period before a seller note can be refinanced rose from 24 to 36 months; this is reported, not quoted from the SOP text.

How does the half cap work? Worked examples

Example 1: seller note only

1. Total project costs (price plus working capital, fees and closing costs): $2,500,000.
2. Required injection: 10% x $2,500,000 = $250,000.
3. Limited-source cap: $250,000 / 2 = $125,000.
4. Most the full-standby seller note can cover: $125,000.
5. Buyer's other sources: at least $125,000.

Example 2: seller note plus passive investors

1. Total project costs: $1,200,000.
2. Required injection: 10% x $1,200,000 = $120,000.
3. Limited-source cap: $120,000 / 2 = $60,000.
4. Passive minority investors (under 20% in total) put in $40,000. That uses part of the cap.
5. Most the full-standby seller note can now cover: $60,000 - $40,000 = $20,000.
6. Buyer's other sources: at least $60,000.

The cap is shared. Every dollar from small passive investors is a dollar the seller note cannot cover. Investors whose money counts toward the injection also generally receive only tax distributions until the SBA loan is repaid.

Why do sellers resist full standby?

Most sellers want cash. In the IBBA Market Pulse for Q2 2026, sellers received 83% to 92% of deal value in cash at closing, and seller financing was under 10% of deal value. Where listings offer seller financing at all, which is 20.4% of US listings, the median stated note is 30% of the price at 7% over 3 years. A seller expecting payments over 3 years is being asked to wait up to 10 with nothing paid.

The seller also sits behind the bank. If the business fails, the SBA lender is repaid first. A standby note is the most junior money in the deal except your own equity.

What can make it acceptable to a seller:

• A small note. Up to 5% of project costs is a smaller ask than 30% of the price.
• A clear explanation that the rule is the SBA's, not the buyer's preference.
• A transition role. The seller may stay as a consultant or employee for up to 24 months in aggregate after closing.
• A second, regular note on top, if coverage allows it.

What if the seller wants a regular note instead?

A regular note is allowed. It just stops counting as equity and starts counting as debt.

1. Regular seller note: $150,000 at 7% over 3 years.
2. Annual payment: about $55,600.
3. Extra historical cash flow needed at 1.25x coverage: $55,600 x 1.25 = about $69,500.
4. Your injection: the full 10% must come from other sources, because the note no longer counts.

You can use both: a small full-standby note toward the injection and a regular note that the cash flow can carry. Get the lender to approve the structure before you put it in the letter of intent.

If you already own a business

If your purchase is a Business Expansion, the lender may reduce or waive the injection when you show strong liquidity and positive net worth. Then a standby note matters less, and a regular note may serve the seller better. Coverage for a Business Expansion is tested at 1.15x.

Where these numbers come from: Standby, limited-source, coverage and seasoning rules are from SBA SOP 50 10 8.1 as summarized by Beancount, FunderIntel, Cantrell Law and Starfield & Smith. Cash-at-close data is from the IBBA Market Pulse Q2 2026. Listing terms are from BigIdeasDB. Confirm current terms with an SBA lender. SOP 50 10 8.1 applies to loans numbered on or after October 1, 2026; lender practice under it is still settling, and the summaries above are secondary sources.

Related questions

Can a seller note be my entire down payment?

No. As of October 2026, limited sources, including a full-standby seller note, can supply no more than half of the 10% injection. The rest must come from other sources.

Does a seller note on partial standby count?

No. Only a note on full standby, with no principal or interest paid for the life of the SBA loan, counts. A note with any payments is included in debt service coverage instead.

Can I combine investors and a seller note?

Yes, but they share one cap: together they cover at most half the injection. See Can investors fund my down payment, and what do I give up?

What comes next

Once the injection is set, the bank decides how much it will lend against the business's cash flow: How much will a bank lend to buy a business? The buyers who end up with the most valuable companies decide what the business goes into before they buy it, because a seller who waits years for payment may prefer a stake in something larger.

Related articles

• What are the SBA 7(a) rules for buying a business, as of October 2026?
• How much will a bank lend to buy a business?
• SBA loan or seller financing: which is better?
• What is a full-standby seller note, and why do sellers resist it?
• How do you build a holding company for acquisitions?

Meraki Dealmakers is a service of Meraki Partners, LLC, an advisory firm. It is not a broker-dealer, investment adviser, business broker, law firm or accounting firm. This article is general information, not legal, tax or investment advice.