Seller Financing and the Impact on Equity Injection Requirements

September 12, 2025

by a searcher from Washington University in St. Louis in St. Louis, MO, USA

I am trying to interpret the SBA rule changes in SOP###-###-#### and how seller financing impacts the 10% equity injection requirement for 7(a) loans. Do the new rules imply that a buyer cannot get a seller note for more than 5% unless the note is on full standby to the SBA loan? Is there any way to avoid that?

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Reply by a searcher
in San Diego, CA, USA

Hunter, here’s a few options to consider that should satisfy the SBA requirements: The most common structure is to split the note—5% on full standby counts toward equity, while any additional seller financing can be structured as a subordinated note. The extra portion won’t reduce the equity requirement, but it will lower the SBA loan size and overall leverage. Another option is a shorter standby period (e.g., two years instead of the full SBA loan term). While it won’t count toward equity, it gives you breathing room on cash flow during the early years when the business is most vulnerable. You can also look at a seller note structured as an earn-out, tying part of the purchase price to future performance. This doesn’t count as equity, but it reduces the upfront SBA loan request. Lastly, if the seller is open to rolling a portion of their payout into a true equity stake, that contribution can count toward the 10% requirement though SBA requires at least 20% ownership for guarantors. Each of these approaches helps you leverage seller financing without running afoul of SBA rules, while preserving cash and aligning interests.

Reply by an intermediary
from University of Iowa in Kansas City, MO, USA

This is true only if you are planning on that 5% seller note counting towards your minimum equity injection (which is 10%). There is no rule requiring all seller carry over 5% needing to be on standby. For example you could have a structure like this for a $5mm purchase (round numbers and not including fees): - $4mm senior SBA debt (80% of total project) - $250m cash injection from buyer (5% of total project) - $250m standby seller note counted as equity (5% of total project) - $500m concurrent seller note (10% of total project) I should note that "standby" and "subordination" are often conflated, but they are different. All seller notes are subordinate to the senior SBA debt. Hope this helps! DM me if you have any other questions. Sam

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