Example: $1.2M sale with a 10% seller note (fictional)
| Source of funds | Amount | Notes |
|---|---|---|
| Buyer cash | $60,000 (5%) | Unborrowed personal funds |
| Seller note on full standby | $60,000 (5%) | No principal or interest while the SBA loan is outstanding if it counts as equity |
| SBA 7(a) loan | $1,080,000 (90%) | Business acquisition term typically 10 years |
| Cash to you at close | $1,140,000 | Before fees, debt payoff and tax |
SBA standby rules in plain English
Under SBA SOP 50 10 8 (effective June 1, 2025), a seller note can count toward the buyer’s required 10% equity injection only if it is on full standby - no principal or interest payments - for the entire SBA loan term, and it cannot be more than half of the injection. A seller note that is paid during the loan term does not count as equity and must fit the lender’s cash-flow tests. SOP 50 10 8.1 takes effect October 1, 2026 and rewrites parts of the acquisition rules, so ask the buyer’s lender which version applies.
Protect yourself as the lender
- Personal guarantee from the buyer (and spouse where appropriate).
- Security interest in business assets, subordinate to the bank if required.
- Financial reporting covenants and a default trigger if payments stop.
- Cross-default with the lease and bank loan.
- Life and disability insurance on the buyer, assigned to you.
Tax
A seller note usually lets you report gain on the installment method as principal is received, spreading tax across years; interest is ordinary income, and depreciation recapture is taxed in the year of sale regardless (IRS Publication 537).
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Frequently asked questions
How common is seller financing?
Common in buyers’ expectations: 90% of surveyed buyers expected it in BizBuySell’s Q2 2026 report, while only 29% of owners planned to offer it.
Can a seller note be paid while the buyer has an SBA loan?
Yes, but then it does not count toward the equity injection. Only a note on full standby for the loan term can count, capped at half the injection.
What interest rate should I charge?
It is negotiated. Price it for the risk you take as a subordinate lender, and check any SBA or lender limits on the note terms.
Sources
- BizBuySell Insight Report (Q2 2026) (accessed 2026-09-23)
- Whiteford - SBA SOP 50 10 8: key changes (seller notes, equity injection, partial changes of ownership) (accessed 2026-09-23)
- SBA Information Notice 5000-880695 - Issuance of SOP 50 10 8.1 (effective Oct 1, 2026) (accessed 2026-09-23)
- SBA SOP 50 10 (lender and development company loan programs) (accessed 2026-09-23)
- IRS Publication 537 - Installment sales (accessed 2026-09-23)