What Actually Changed on June 1, 2025
Since June of last year, I have received the same question from buyers at least three times a week: "How do I get a seller to agree to full standby?" The short answer is you cannot force it. The longer answer, the one that actually saves deals, takes about ten minutes to explain. I have spent roughly 30 years in commercial lending. In that time, seller note structures have changed multiple times. But the June 2025 change is the most significant I have seen, and it is causing more confusion and more dead deals than any single SBA policy shift in recent memory. That is what this post is for.
I want to be clear about what this post is and what it is not. This is not a legal interpretation of SOP 50 10 8. I am not an attorney. This is a practitioner's guide based on structuring hundreds of SBA acquisition deals, including dozens since the June 2025 rules took effect. If you are buying a business with SBA financing and your deal includes a seller note, this post will save you time, money, and very likely your deal.
Before June 2025, seller notes in SBA deals could be structured with a two year standby period. That meant the seller would receive no payments for 24 months while the new owner stabilized the business, and then the note would begin amortizing. Sellers understood this. Buyers understood this. The two year standby had been in place since August 2023 when SBA loosened the rules from the previous full standby requirement.
On June 1, 2025, SOP 50 10 8 took effect and reversed that. Seller notes counted toward equity injection must now be on full standby for the life of the SBA loan. If the SBA loan is 10 years, full standby is 10 years. If it is 25 years, full standby is 25 years. No payments of any kind during that period.
| Before June 2025 | After June 2025 | |
|---|---|---|
| Standby Period | 2 years (24 months) | Full life of SBA loan (up to 25 years) |
| Payments During Standby | Zero | Zero |
| Interest Accrual | Yes, at note rate | Yes, at note rate |
| When Seller Gets Paid | Month 25 (after 2-year standby) | Only when SBA loan is fully repaid, refinanced, or business is sold |
| Max Seller Note as Equity | Could cover most of equity injection | Max 50% of required equity injection (typically 5% of deal) |
| Buyer Cash Required | Could be as low as 2.5% | Minimum 5% cash (the other half of 10% equity injection) |
In addition, the SBA restored the 10% equity injection requirement for all change of ownership transactions. That means on a $2 million acquisition, the buyer must contribute $200,000 in equity. Of that $200,000, a seller note can cover at most $100,000 (50%), and the remaining $100,000 must be the buyer's own cash. The seller note portion is on full standby. The cash portion is gone at closing.
Seller notes can only cover half of the required 10% equity injection. The other half must be buyer cash. On a $2M deal, that means $100K cash minimum.
SOP 50 10 8, Section 4.a
I want to add one more layer because this is where I see the most confusion online. Not all seller notes in an SBA transaction are required to be on full standby. The standby requirement applies specifically to seller notes that are counted as part of the buyer's equity injection. If a seller provides additional financing beyond the equity injection (for example, a second note that is subordinated to the SBA debt but not counted as equity), that note may have different terms. However, the SBA lender must approve the structure and the total debt service must still meet DSCR requirements. In practice, most SBA acquisition deals where the seller carries a note are using that note as part of the equity injection. So for most readers of this post, full standby is the operative rule.
Why Sellers Are Saying No
Put yourself in the seller's position for a moment. You built a business over 15 or 20 years. You found a buyer. You agreed to carry a $200,000 note as part of the deal because your broker told you that is standard in SBA transactions. You expected to receive monthly payments starting in year three.
Now someone tells you that the note is on full standby. You ask what that means. They explain: you will receive zero dollars for the next 10 years. No principal. No interest payments. Nothing. The interest will accrue on paper, but you will not see a check until the SBA loan is completely paid off.
“From the seller's perspective, a full standby note does not feel like a note. It feels like a gift with a promise attached. Understanding that emotional reality is the first step to keeping the deal together.”
The emotional reaction is predictable and I see it in almost every deal. Sellers say some version of: "I am not giving my business away. Find another way to pay me." That reaction is rational. A dollar received in 10 years is worth significantly less than a dollar received today. On a $100,000 note at 5% interest, the seller receives $163,000 in year 10. But the present value of that $163,000 received in 10 years (discounted at even a modest 4% rate) is roughly $110,000. The seller is carrying $100,000 of risk for a real economic benefit of approximately $10,000.
| Seller Note Scenario | $100K Note, Old Rules (2-year standby) | $100K Note, New Rules (Full Standby, 10-year loan) |
|---|---|---|
| First Payment to Seller | Month 25 | Month 121 (after SBA loan payoff) |
| Total Interest Earned | ~$27,000 over 8-year amortization | ~$63,000 accrued over 10 years |
| Total Received by Seller | $127,000 | $163,000 |
| Present Value (at 4% discount) | ~$118,000 | ~$110,000 |
| Time Seller Waits for Full Payment | 10 years (2 standby + 8 amortizing) | 10 years (all standby, lump sum) |
| Seller Risk Exposure | Moderate (payments begin in year 3) | High (no payments for full decade) |
The math tells the story. Under the old rules, the seller received more money sooner with less risk. Under the new rules, the seller receives slightly more total dollars but waits a full decade and carries all the risk of business performance, buyer default, and time value erosion. No rational seller prefers the new structure. Which means every deal that includes a seller note now requires a different conversation than it did 12 months ago.
The Conversation That Saves the Deal
This is the section that does not exist anywhere online, and it is the reason I am writing this post. I have had this conversation with sellers and buyers dozens of times since June 2025. Here is the framework I use.
There are five points I walk through with every seller. I present them in this order because each one builds on the last.
The standby is not permanent
It ends when the SBA loan is paid off or refinanced. Most SBA 7(a) loans are 10 years. Many buyers refinance with conventional debt in 3 to 5 years once the business has a track record under new ownership. If the buyer refinances in year 4, the seller starts receiving payments in year 4. Full standby does not mean forever. It means 'until the SBA is out of the picture.'
Interest accrues during standby
The seller is not losing the economic value of the note. At 5% on a $100,000 note, roughly $63,000 in interest accrues over 10 years. The total payoff is $163,000, not $100,000. The seller earns a return. The return is deferred, not eliminated.
A closed deal with standby beats a dead deal without it
This is the most important point. If the buyer cannot secure SBA financing without a seller note on standby, the alternatives are: (a) the deal dies, (b) the buyer finds a different financing path that may not exist, or (c) the seller accepts full standby and the deal closes. A seller note on a closed deal is worth infinitely more than a traditional note on a deal that never closes.
The purchase price can be adjusted to compensate
If the present value of a full standby note is lower than a traditional note, the purchase price can be increased to close the gap. A seller who would have accepted $2.0M with a traditional note might accept $2.1M with a full standby note. The buyer's SBA loan is slightly larger, but if DSCR still clears, the deal works and the seller feels fairly compensated.
The buyer's success is the seller's best protection
A seller note aligns incentives. The seller wants the business to succeed because that is how they get paid. A buyer who has skin in the game (5%+ cash equity) and a seller who has deferred compensation creates a partnership, even if neither party calls it that. Framing the standby as an alignment tool rather than a sacrifice changes the seller's perspective.
“I tell every buyer the same thing: if you cannot explain full standby to your seller in five minutes and have them understand why it is in their interest, you are not ready to sign the LOI.”
Five Deal Structures That Still Work
Not every seller will accept full standby even after the conversation above. That is reality. When a seller says no, here are the five paths I see working in the current environment. I am listing them in order of how frequently I see them succeed.
1. Full standby with purchase price adjustment
Increase the purchase price by the net present value of the deferred payments. On a $2M deal with a $100K seller note, adding $15,000 to $25,000 to the purchase price compensates the seller for the time value of standby. The buyer's SBA loan increases by the same amount. If DSCR still clears at the higher loan amount, this is the cleanest path. This is the most common structure I am seeing post June 2025.
2. Reduce seller note, increase buyer cash equity
Instead of a $100,000 seller note and $100,000 cash, shift to $50,000 seller note and $150,000 cash. Less standby exposure for the seller. More cash required from the buyer. This works when the buyer has liquidity but initially preferred to keep more cash in reserve. The tradeoff is straightforward: more cash down means less seller friction.
3. Earnout or consulting agreement instead of seller note
Performance-based payments to the seller are NOT subject to SBA standby rules. A consulting agreement for transition services or an earnout tied to revenue targets achieves a similar economic result for the seller without triggering the standby requirement. The SBA does scrutinize these structures, so they must be legitimate and the terms must be reasonable. But this is a viable path when structured properly. See the SBA's guidance on management contracts in SOP 50 10 8, Chapter 4.
4. Conventional refinance plan
Structure the acquisition with SBA financing today and plan to refinance with conventional debt in 3 to 5 years. Once the business has operated under new ownership for 2 to 3 years with clean financials, conventional lenders will often refinance the SBA debt at competitive rates. When the SBA loan is retired, the seller note standby ends and payments begin. The SBA 7(a) prepayment penalty expires after 3 years. This is not theoretical. I have structured dozens of deals with this exit strategy.
5. Walk away from the deal
If the seller will not accept any version of standby, will not adjust price, and the buyer cannot increase cash equity, the deal does not work under current SBA rules. That is not failure. That is arithmetic. I would rather tell a buyer on day one that the structure does not work than let them invest three months and $15,000 in due diligence costs discovering the same thing at underwriting.
Approximate percentage of sellers who accept full standby once the mechanics are explained clearly and the purchase price is adjusted. The remaining 40% require alternative structures or walk away.
CLX deal pipeline analysis, June 2025 through April 2026
The Bigger Picture: SBA Lending in 2026
The full standby requirement did not happen in isolation. June 2025 brought the most significant tightening of SBA lending standards since the program's inception. Here is what else changed.
| SBA Rule Change | What It Means for Acquisition Buyers | Effective Date |
|---|---|---|
| 10% equity injection restored | Minimum 10% down on all acquisitions. No more 2.5% or 5% deals. | June 1, 2025 |
| Collateral threshold dropped to $50K | Business assets and personal real estate may be required as collateral on loans over $50K. Previously $500K threshold. | June 1, 2025 |
| 7(a) small loan cap reduced to $350K | Deals over $350K now require full underwriting instead of expedited process. Longer timelines, more documentation. | April 21, 2025 |
| Full citizenship required | 100% of ownership must be U.S. citizens. Green card holders and LPRs are no longer eligible for SBA loans. | February 19, 2026 |
| Government shutdown (43 days) | All SBA lending activity halted from October 1 through November 13, 2025. 10,000 businesses affected. | October 2025 |
| SBA workforce reduced 43% | 2,700 SBA positions eliminated. Processing times may increase. | March 2025 onward |
| Fee reinstatement | Upfront guaranty fees of 2 to 3% reinstated after zero-fee pandemic period. Adds to true cost of financing. | March 2025 |
I am not listing these to alarm anyone. Deals are still closing. CLX reviewed 138 deals in Q1 2026 alone. But the margin for error that existed from 2023 to mid 2025 is gone. Every element of the deal structure matters now. The equity injection. The seller note terms. The DSCR calculation. The collateral. The citizenship of every person in the ownership structure. If any one of these does not meet the current SOP requirements, the deal stalls or dies.
What I Am Seeing in the Pipeline Right Now
I want to share some numbers from what CLX is actually seeing, because real data is more useful than speculation.
| CLX Pipeline Metric | Pre June 2025 | Post June 2025 |
|---|---|---|
| Deals reviewed per quarter | ~175 | ~138 (Q1 2026) |
| Deals with seller financing component | ~45% | ~35% |
| Seller notes requiring restructuring | ~10% | ~55% |
| Average days to close | ~67 days | ~88 days |
| Deals killed by seller note impasse | ~3% | ~12% |
The data tells a clear story. Fewer deals include seller financing because buyers and sellers are both adjusting to the new rules. When seller notes are included, more than half require restructuring from the original terms. Closing timelines have increased by approximately three weeks. And the percentage of deals that die specifically because the seller and buyer cannot agree on note terms has quadrupled.
But here is the part that matters most: deals are still closing. The total volume of SBA acquisition lending is down modestly from 2025 peaks, but the market is active. Buyers who understand the rules and structure accordingly are finding motivated sellers, negotiating reasonable terms, and getting to the closing table. The buyers who struggle are the ones who learn about full standby in month two of underwriting instead of week one of negotiations.
What I Am Telling My Clients
I have to volunteer my conflict of interest here, as I always do. CLX earns a success fee when deals close. I have a financial incentive to encourage you to move forward. I am naming that so you can weigh what follows accordingly.
With that said, here is what I am actually telling clients:
First, do not try to avoid full standby. I have seen buyers waste months looking for lenders who will bend the SOP. Those lenders do not exist in meaningful numbers, and the ones who claim flexibility often create bigger problems at closing. The SOP is the SOP. Structure around it.
Secondarily, have the seller note conversation before you sign anything. If your seller cannot accept full standby or a reasonable alternative (price adjustment, earnout, reduced note), you need to know that before you spend $10,000 to $20,000 on due diligence, quality of earnings reports, and legal fees. The two cheapest words in acquisition financing are "day one." The two most expensive are "month three."
Lastly, the math still works for the right deals. SBA 7(a) rates are at 9.50% today with prime at 6.75%. That is down from 10.25% a year ago. A $2 million acquisition of a business with stable cash flow and low energy exposure is financeable today at rates that are more favorable than they were 12 months ago. The seller note adds complexity, but complexity is not the same as impossibility. It just requires more precision in structuring.
“The two cheapest words in acquisition financing are 'day one.' The two most expensive are 'month three.' Know your seller note structure before the LOI, not after underwriting.”
The Bottom Line
Full standby seller notes are the new reality of SBA acquisition financing. The rule is not going to change back anytime soon. The SBA restored these requirements deliberately as part of a broader return to traditional underwriting standards after two years of lenient policies.
The buyers who succeed in this environment are the ones who understand the rule, explain it clearly to sellers, and structure deals that work within it. The buyers who fail are the ones who pretend the rule does not exist or spend months looking for workarounds that do not hold up at underwriting.
If you are in the middle of a deal and your seller is pushing back on full standby, or if you are about to sign an LOI and want to understand how the current rules affect your specific structure, I am happy to walk through the numbers. That conversation costs nothing and it takes about 15 minutes.
Brad Hettich
President, Commercial Lending X
~30 years in commercial banking. Originated close to $1.4 billion, underwritten $2.5 billion+. Brad writes about SBA lending, deal structuring, and commercial credit markets from the perspective of someone who has been on both sides of the desk.
View full bio →Related Transactions
Recent deals related to this topic.
Business acquisition with full standby seller note, purchase price adjusted to compensate seller for deferred payments. Closed in 74 days.
Professional services acquisition, buyer funded full 10% equity injection in cash, no seller note required. Closed in 52 days.