Glossary
Standby agreement
A written agreement under which a creditor — usually a seller or a family member — accepts no payments of principal or interest for the term of the SBA loan. It is the mechanism that turns a note into something countable as equity.
Standby agreement: A written agreement under which a creditor — usually a seller or a family member — accepts no payments of principal or interest for the term of the SBA loan. It is the mechanism that turns a note into something countable as equity.
Why it matters
Full standby is the bridge between “I do not have 10% in cash” and a deal that closes. If a seller will accept a note on full standby, that note can count toward your equity injection rather than sitting against you as debt.
It also protects the lender: money on full standby cannot compete for cash flow, so it does not undermine the coverage calculation the loan was approved on.
What 'full standby' actually means
- No payments at all — not principal, not interest — for the full term of the SBA loan. Not reduced payments. Not interest-only.
- Interest may accrue and be added to the standby debt, amortizing after the SBA loan is repaid in full.
- The standby creditor subordinates any lien rights to the lender's.
- The standby creditor agrees to take no action against you or the collateral without the lender's consent.
- It is documented on SBA Form 155 or the lender's equivalent, with a copy of the note attached.
Negotiating it with a seller
Sellers resist, understandably — you are asking them to wait years. What helps:
- Explain that it is what makes the deal financeable. Without it there may be no sale at this price.
- Interest can still accrue, so they are not giving up the return, only the timing.
- Part of the note can be on standby while the rest is on normal terms, if the lender agrees and only the standby portion counts as equity.
- Raise it early. A seller who learns about standby after agreeing a price feels re-traded; one who knew from the start prices it in.