SBA rules · SOP 50 10 8.1

Can a seller note count toward the SBA down payment?

Yes, a seller note can count toward the required equity injection, but it must satisfy strict standby, subordination, and maximum percentage rules depending on the program.

Quoted from SBA SOP 50 10 8.1Every quote checked word for word

In detail

7(a) change of ownership cap: In a 7(a) change of ownership, seller debt that is subordinated to the lender and on full standby, meaning no payments of principal or interest for the term of the 7(a) loan, can count as equity, but limited equity sources individually or in the aggregate may provide no more than half of the required equity injection.
7(a) standby agreement terms: Standby debt must be executed using SBA Form 155 or the lender's equivalent with the note attached, may accrue interest to be paid after the 7(a) loan is paid in full, and the standby creditor cannot take an equity investment in the business or take action against collateral without lender consent.
504 loan carry-back: In the 504 program, borrowed funds such as a seller carry-back may count toward the borrower's contribution if subordinated to the Third Party Loan and 504 debenture, and, if secured by the project property, the debt cannot be repaid at a faster rate than the 504 loan without SBA's prior written approval.
Excess valuation supplement: In a 7(a) acquisition where the purchase price exceeds the value supported by the business valuation and Quality of Earnings report, additional seller debt may be used on full standby to bridge the difference.

The source

What the SOP says

“Seller debt that is subordinated to the Lender and on full standby (no payments of principal or interest for the term of the 7(a) loan) may be considered as equity for SBA’s purposes.

SOP 50 10 8.1, Appendix 15: 7(a) Changes of Ownership > Seller Debt: (lines 5202-5204)✓ Verified

“The following sources, whether individually or in the aggregate, may provide no more than half of the required Equity Injection.

SOP 50 10 8.1, Appendix 15: 7(a) Changes of Ownership > Limited Equity Injection Sources: (lines 5195-5197)✓ Verified

“Debt that is on full standby (no payments of principal or interest for the term of the 7(a) loan) may be considered as equity for SBA’s purposes.

SOP 50 10 8.1, Appendix 15: 7(a) Changes of Ownership > Standby Debt Agreements: (lines 5198-5201)✓ Verified

“Only in situations where the borrowed contribution is collateralized by the Project Property, Borrower may not pay the loan for its contribution at a faster rate than the 504 loan (13 CFR § 120.912) unless it is approved in writing by the D/FA or designee;

SOP 50 10 8.1, Chapter 1: Eligibility through Submission of Application > If the Borrower’s contribution is borrowed: (lines 3482-3485)✓ Verified

“The seller of the property is carrying back a loan that is part of the Borrower’s contribution.

SOP 50 10 8.1, Chapter 1: Eligibility through Submission of Application > The appraiser must be: (lines 3625-3631)✓ Verified

“If any section of SOP 50 10 conflicts with this Appendix, the rules contained in this Appendix shall govern the change of ownership transaction.

SOP 50 10 8.1, Appendix 15: 7(a) Changes of Ownership > This appendix is organized as follows (lines 5030-5036)✓ Verified

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