In today’s business acquisition landscape, seller financing continues to play a crucial role — especially when traditional lenders hesitate. Despite rumors to the contrary, seller notes are not dead under new SBA regulations. In fact, they’ve evolved into powerful tools that can make deals more accessible and flexible for buyers, sellers, and lenders alike.
1. Seller Notes on Full Standby
Under updated SBA rules, a seller note placed on full standby — meaning no payments until the SBA loan is completely repaid — can count as up to 5% of the buyer’s required equity injection.
Benefit: Buyers can reduce their cash down payment from 10% to as little as 5%, making ownership more attainable.
For sellers: It widens the pool of qualified buyers while demonstrating confidence in the business’s future.
2. Forgivable Seller Notes
When risk factors like customer concentration or high valuation concern lenders, a forgivable note can bridge the gap. These notes tie repayment to performance — if certain post-sale conditions aren’t met, part (or all) of the note can be forgiven.
Benefit: Buyers avoid overpaying, lenders gain security, and sellers can still secure a higher upfront price.
3. Two-Year Standby Notes
A two-year standby seller note allows payment deferral for the first 24 months — a smart move when early cash flow is tight. Because these payments are excluded from the Debt Service Coverage Ratio (DSCR) during underwriting, it helps lenders approve deals that might otherwise stall.
Benefit: Improves loan approval odds while keeping repayment flexibility.
The Takeaway
Seller notes remain a cornerstone of SBA-financed acquisitions. Whether used for equity injection, risk mitigation, or DSCR relief, they align buyer, seller, and lender interests — helping more deals reach the closing table.
If you’re exploring an SBA-backed acquisition or want to structure a deal creatively, consider how these modern seller-note strategies can make your transaction possible.
About the Author:
Mark Nichols, VP SBA BDO, brings over 20 years of experience helping business owners secure customized SBA financing solutions for sustainable growth.
