What purpose does the proposed seller note serve?
Ask whether the note funds part of the purchase, helps meet required equity, fills a supported value gap, or serves another purpose. Record the proposed amount and terms. The words “seller financing” do not establish which policy condition the parties are trying to meet.
Use the selling hub to place this review beside price and proceeds. A seller needs to understand cash at closing and later obligations. The buyer needs to know what funding the lender actually accepts before relying on the note in its sources table.
A seller-debt equity review links the proposed note to its policy purpose, source cap, payment terms, supporting documents, and lender response. It is a planning record. It does not make the note eligible or guarantee that the seller will collect it.
Which current policy conditions apply?
Appendix 15 of the October 1, 2026 SOP distinguishes transaction categories and sources of equity. Confirm the lender-applicable edition and later notices. Do not rely on an older financing article without checking the actual policy.
The appendix states Initial Acquisition's 10% required equity and says it cannot be reduced or eliminated. The basis is defined total project cost, not simply a seller's asking price. Other categories and equity treatment have their own conditions.
Ask the lender to document the actual category, amount, basis, and accepted sources. A qualified seller note may address one part of the plan while leaving repayment, value, collateral, and liquidity questions unresolved. Keep those decisions separate.
How does the limited-source cap work?
The current appendix groups specified limited equity sources under a shared cap. Individually or together, they may supply no more than half of required equity. Review the full source mix, rather than testing each proposed source in isolation.
If another limited source is used, it can affect the room available for the seller note. The parties should not assume that each type gets its own separate half. Ask the lender to explain the calculation and retain the supporting terms.
The SBA 7(a) overview provides broad program context. It does not accept a particular note or contribution. The actual credit file needs the applicable policy analysis and verified sources for this transaction.
What does full standby change for the seller?
For seller debt counted as equity, the appendix requires subordination and full standby, with no principal or interest payments during the 7(a) term. Read the note and standby agreement together. A plan to pay interest monthly does not meet that stated no-payment condition.
The policy also addresses standby documents and limits on lien rights and action without the lender's consent. Counsel should review the actual obligations, restrictions, and proposed recovery rights. Do not describe the note as ordinary cash available to the seller in the first post-close year.
The cash-at-close guide helps reconcile proceeds. Show the note separately from closing cash, fees, payoffs, taxes, and retained items. An agreed face amount is not an immediate receipt or proof of future payment.
What can a conditional 90/5/5 example show?
Consider an illustrative plan, with no actual target data. Assume a correctly classified Initial Acquisition and defined total project cost of $1 million. The chosen required equity calculation is 10%, or $100,000. Assume no other limited equity source and no later policy change.
A proposed $50,000 seller note would equal half of that required equity. A proposed $50,000 buyer contribution plus a $900,000 7(a) loan would bring the listed sources to $1 million. The note still needs the required terms and actual lender acceptance.
This calculation does not establish the seller's cash proceeds. The uses may include operating funds and other costs as well as price. It also does not establish eligibility, sufficient liquidity, valuation support, or approval of a 90/5/5 package.
Which documents should agree before closing?
Request the proposed purchase agreement, note, standby document, funding schedule, and relevant lender response. Match names, amount, priority, payment terms, and any action restrictions. A summary spreadsheet should not say “full standby” while the note provides scheduled payments.
Keep the lender's accepted form and any required attachments with the executed records. Ask counsel what happens if a later change is proposed. Do not assume that buyer and seller can amend payments without considering the lender's rights and applicable requirements.
Use the asset purchase agreement definition to connect the note to the wider deal terms. Price allocation and customer or operating duties need their own review. The note cannot stand in for a complete transaction agreement.
How should the source and proceeds schedules reconcile?
Keep required equity, actual funding sources, purchase uses, and seller proceeds in separate fields. Reconcile them using the accepted documents. A source can support the financing plan without being a cash payment to the seller at closing.
| Schedule field | Evidence to inspect | Cash-plan question |
|---|---|---|
| Required equity | Category and defined cost basis | What amount must the plan support? |
| Limited sources | Actual source mix and lender review | How much of the shared cap is used? |
| Seller note | Note and standby document | What is deferred and on what terms? |
| Buyer funds | Verified accepted contribution | What cash actually reaches the closing? |
| Loan | Actual commitment and disbursement terms | What funding remains conditional? |
| Uses | Price, costs and operating funds | Where do the sources go? |
| Seller proceeds | Payoffs, fees and reviewed deductions | What cash is available to the seller? |
Update both schedules when the price, cost basis, funding, or note changes. Preserve the correction trail. A headline percentage cannot explain an unbalanced cash plan.
What tax questions remain separate from SBA eligibility?
IRS Publication 537 addresses installment sales with conditions and exceptions. Have the CPA review the actual sale assets, allocation, interest, note, and payment structure. Its tax guidance does not make seller debt eligible SBA equity.
Some tax treatment can differ from the timing of cash receipts. The seller needs a payment-year review based on the actual facts. Do not assume that a full-standby note allows all sale taxes to wait until principal is collected.
Counsel and the CPA should also review any proposed amendment or early payoff. A change can affect different parts of the plan. Keep tax advice and the lender's required consent with the records rather than promising one outcome from the note label alone.
How does the seller assess collection risk?
Review the buyer's actual cash flow, debt, liquidity, commitments, and operating plan. Full standby defers payment without eliminating credit risk. A lender's willingness to finance the buyer does not guarantee that a subordinated seller note will be recovered.
The escrow and earnout guide helps compare different deferred amounts. Keep the note's fixed claim and actual restrictions distinct from performance-based consideration or an escrow claim. Current SBA rules also treat those structures separately.
Ask counsel to explain the supported recovery terms and limitations. The seller can evaluate the note beside its need for cash and tolerance for delay. A face value should not be presented as equivalent to cash merely because the agreement is signed.
What sequence supports a clear standby decision?
- Identify the note's purpose, actual transaction category, policy edition, and required equity basis.
- Reconcile all limited and unlimited sources with the lender's documented analysis.
- Have counsel review the note, standby, subordination, payment limits, and related agreement.
- Model closing cash, deferred receipts, taxes, and collection risk using the actual terms.
- Confirm the accepted documents and funding evidence before relying on the structure.
Use the sale preparation guide to keep the seller's cash plan beside the financing schedule. The useful outcome is a supported decision about the proposed note and its limits. It lets both parties discuss price and funding without treating conditional equity treatment as a loan approval or a promise of payment.