Seller Note Builder

The Standby Period (Why It Matters)

SBA SOP 50 10 8 requires 24 months on full standby for any seller note that counts toward the buyer's equity injection. “Full standby” means no principal payments, no interest payments, and no interest accrual during that window. The note effectively pauses for two years.

Notes that do not count toward equity injection have more flexibility, but lenders still require partial standby in most cases. Without standby, a seller note can hurt your DSCR enough to break the SBA loan approval.

When a Balloon Makes Sense

A balloon shifts most of the principal to the end of the term and keeps monthly payments lower in between. Useful if you expect to refinance the seller note or sell the business before the balloon comes due. Risky if you don't have a clear plan for paying it.

A common pattern is a 5-year note with a balloon at month 60: 24 months of standby, 36 months of low amortization payments, then the entire remaining balance at the end. Plan the refinance source before signing — don't assume you'll figure it out later.

Negotiating the Note

Sellers usually want a higher rate and shorter term; you want the opposite. Real-world acquisition seller notes settle around 6–9% on a 3-to-7-year amortization. Push for the longer term — it gives you flexibility on cash flow without costing the seller materially in present-value terms.

One non-negotiable: insist on the standby provision in writing, even if your lender's template doesn't include it. Without it the SBA can refuse to approve the senior loan late in underwriting.