SBA Form 155 standby agreement: seller notes on SBA loans
When you buy a business with a Small Business Administration (SBA) loan, a note you owe the seller can count toward your down payment. It counts only if the seller takes no payments while the SBA loan lasts. It can cover at most half of the down payment. The sections below explain the paperwork and rules.
The purchase agreement decides what you bought, not the loan approval.
Request Engagement AssessmentAlex Lubyansky leads every engagement.
What a standby creditor agreement is
A standby agreement is the formal agreement that puts a note behind the 7(a) loan. The SOP's instruction is to use SBA Form 155, the "Standby Creditor's Agreement," or an equivalent, and "a copy of the Note must be attached to the standby agreement and included in the credit file." The creditor subordinates its liens and needs the lender's consent to act. Certified Development Companies use the same form for 504 loans.
Source: SOP 50 10 8.1, Appendix 15, Standby Debt Agreements; Section C, Ch. 2
Standby interest may accrue. The SOP says it "may be added to the standby debt and amortized after the 7(a) loan is paid in full."
Source: SOP 50 10 8.1, Appendix 15, Standby Debt Agreements
Full standby for the loan term
Only full standby counts. The SOP recognizes "only debt that is on full standby (no payments of principal or interest for the term of the 7(a) loan)." There is no interest-only option in 8.1: a seller note that pays interest currently is not on standby, and the SOP does not describe a partial standby. SOP 50 10 8.1 has no 24-month standby option. Interest may accrue unpaid, as above.
Source: SOP 50 10 8.1, Section B, Ch. 1, Credit Standards; Appendix 15, Seller Debt
That draft favors the seller. We review it for the buyer, line by line.
Submit Transaction DetailsAlex Lubyansky leads every engagement.
The half-of-equity cap and the equity-holder bar
A full-standby seller note counts toward the equity injection, but not without limit. Full-standby debt, full-standby seller notes and investments under 20% together "may provide no more than half of the required Equity Injection." The rest of the minimum comes from sources such as unborrowed cash; the down payment explainer lists them.
Source: SOP 50 10 8.1, Appendix 15, Limited Equity Injection Sources; Equity Requirements
The standby lender also cannot be an investor. The SOP says "The provider of standby debt may not take an equity investment in the business." The SOP does not say how this applies to a selling owner who keeps a stake in a partial change of ownership; confirm with the lender.
Source: SOP 50 10 8.1, Appendix 15, Standby Debt Agreements
When the seller note is paid currently
A seller note can also be paid on a normal schedule, but then it earns no equity credit. It counts instead toward two limits. Total debt, "(including seller debt that is not on full standby)," is limited to the business valuation amount, and cash flow must cover the payments on all of it. Interest-only acquisition debt is tested on an amortization of 10 years or less, "the Lender must apply an amortization that does not exceed 10-years," so interest-only terms do not improve the coverage math.
Source: SOP 50 10 8.1, Appendix 15, Change of Ownership Requirements; Adjusted Debt Service Coverage (DSC); Business Valuation Requirements - change of ownership
Seller note standby terms and third-party consents are reviewed before closing.
Submit Transaction DetailsSBA-financed deals. All 50 states.
The 36-month refinance rule and its ambiguity
"Seller debt structured in conjunction with a change of ownership transaction is eligible to be refinanced after it has been in place and current for 36 months." In the section on refinancing debt, the wording is "in place and current (not on standby) for at least 36 months," with a 10% payment test. The two passages differ, and the SOP does not say whether months on full standby count toward the 36. The SOP does not specify the answer, so the lender is the one to ask.
Source: SOP 50 10 8.1, Appendix 15, Seller Debt; Uses of Proceeds (Debt Refinancing)
What the SBA file shows
The SBA loan file does not record seller notes, standby agreements or equity injections, so no figure here measures how often they are used. The file does give the loan: across 48,902 acquisition loans (FY2018 to FY2026, data as of September 30, 2026), the median loan is $645,250. As arithmetic only, a median loan funding 90% of a project implies a project of about $716,944 and a 10% injection of about $71,694. A full-standby seller note could then supply at most half of that, about $35,847, with the other half from sources such as cash. This is illustrative; the actual split depends on the deal. The down payment page repeats the calculation for ten industries.
What this means for a business acquisition
For a change of ownership, a seller note usually matters in two ways at once: as a source of equity if it is on full standby, and as a debt that must fit under the valuation and cash flow limits if it is not. The SOP separates the two cases clearly. Price above the valuation must also come out of equity, and any extra limited funds used for that gap must be on full standby. The complete buyer guide sets these rules in the sequence of a purchase, and the default-rate page describes how these loans performed.
Source: SOP 50 10 8.1, Appendix 15, Business Valuation Requirements - change of ownership; Seller Debt
Questions buyers ask
What is SBA Form 155?
SOP 50 10 8.1 says to use SBA Form 155, the "Standby Creditor's Agreement," or an equivalent, for standby debt, with a copy of the note attached to the agreement and included in the credit file. Certified Development Companies use it for 504 loans as well.
Can a seller note be on standby for less than the full loan term?
Not for equity credit. The SOP counts only debt on full standby, meaning no payments of principal or interest for the term of the 7(a) loan. SOP 50 10 8.1 has no 24-month standby option and no interest-only standby.
Can interest accrue on a standby seller note?
Yes. The SOP says interest may be added to the standby debt and amortized after the 7(a) loan is paid in full. Accrued interest is not paid during the standby period.
How much of the equity injection can a seller note cover?
No more than half. Full-standby debt, full-standby seller notes and minority investments under 20% together may provide no more than half of the required equity injection.
When can a seller note be refinanced?
Seller debt structured with a change of ownership is eligible to be refinanced after it has been in place and current for 36 months. The SOP elsewhere says "current (not on standby)," so whether time on standby counts toward the 36 months is unclear. Ask the lender.
Sources
SBA SOP 50 10 8.1 (effective October 1, 2026), headings cited:
- Appendix 15: Standby Debt Agreements; Limited Equity Injection Sources; Seller Debt; Uses of Proceeds (Debt Refinancing); Change of Ownership Requirements; Adjusted Debt Service Coverage (DSC); Equity Requirements; Business Valuation Requirements - change of ownership
- Section B, Ch. 1: Credit Standards
- Section C, Ch. 2
SBA pages: 7(a) loans. Loan data: SBA 7(a) FOIA file, data.sba.gov, as of September 30, 2026.
Cite this page: SBA Acquisition Data, "SBA Form 155 standby agreement: seller notes on SBA loans", https://sbaacquisitiondata.com/sba-form-155-standby-agreement, published November 1, 2026 (data as of September 30, 2026).
Terms signed in the LOI shape the purchase agreement that follows.
Request Engagement AssessmentAlex Lubyansky leads every engagement.
Advertise on this site: lenders, brokers, valuation and insurance firms. See options