- As of July 2025, 0% down acquisitions are no longer allowed—the minimum buyer cash investment is now 5%.
- A seller note on full standby can count for up to 5% of the 10% equity requirement, enabling 5% down deals.
- Full standby means no payments (principal or interest) for the entire term of the SBA loan (typically 10 years).
- On a $2M deal, the 5% structure saves you $100,000 in cash compared to the standard 10% equity requirement.
The SBA’s seller note rules changed significantly in July 2025, creating new opportunities—and new constraints—for business buyers looking to minimize their cash outlay.
The bottom line: 0% down is no longer possible, but the new rules allow for 5% down acquisitions when structured correctly with a seller note on full standby.
What Changed in July 2025
The Old Rules (Pre-July 2025)
Before July 2025, the SBA allowed seller notes on full standby to count entirely toward the 10% equity injection requirement. This enabled true 0% cash down acquisitions:
- Buyer provides 0% cash
- Seller provides 10% note on full standby
- SBA loan covers remaining 90%
This structure worked—we closed many deals this way—but the SBA concluded it created excessive risk because buyers had minimal “skin in the game.”
The New Rules (July 2025 and Beyond)
The SBA now requires that at least 5% of the equity injection must come from the buyer or their investors. The remaining 5% (of the standard 10% requirement) can still come from a seller note on full standby.
- Minimum cash from buyer: 5% of purchase price
- Seller note on full standby: Can cover the other 5%
- SBA loan: 90% of purchase price
0% down is no longer allowed. The minimum cash investment is now 5%. This applies to all SBA 7(a) acquisition loans submitted after July 2025.
Why This Matters
On a $2 million acquisition:
| Structure | Buyer Cash Required |
|---|---|
| Standard 10% equity | $200,000 |
| New 5% down structure | $100,000 |
| Old 0% down (no longer allowed) | $0 |
You still save $100,000 in cash compared to the standard 10%—but 0% is off the table.
Current SBA Seller Note Rules (As of February 2026)
Types of Seller Notes
The SBA recognizes three types of seller note structures:
1. Full Standby Seller Note
No payments (principal or interest) for the entire term of the SBA loan (typically 10 years). This is what allows seller notes to count toward equity injection.
- Can count toward equity: Yes (up to 5% of deal)
- Included in DSCR: No (no payments = no debt service)
- When payments begin: After SBA loan is paid off
2. Partial Standby Seller Note
No payments for a defined period (often 2-3 years), then regular payments begin.
- Can count toward equity: No
- Included in DSCR: Yes (once payments begin)
- Use case: Bridge until business cash flow improves
3. Standard Seller Note
Regular payments from day one, subordinate to SBA loan.
- Can count toward equity: No
- Included in DSCR: Yes
- Impact: Increases debt service, lowers DSCR
What Is a Full Standby Seller Note?
A full standby seller note is a loan from the seller to the buyer that requires no payments—principal or interest—for the life of the SBA loan.
Key Characteristics
- Term: Must extend beyond SBA loan maturity (typically 10-12 years)
- Payments during SBA term: Zero
- Interest: Can accrue (deferred) or not—varies by negotiation
- Security: Subordinate to SBA lender’s lien on all assets
- Documentation: Must be approved by SBA lender
Sellers accept full standby notes because: (1) it closes the deal—buyers who need seller financing may walk otherwise; (2) tax benefits from installment sale treatment spread capital gains; (3) it signals confidence in the buyer’s success; (4) buyers may pay a higher total price with favorable financing; (5) if interest accrues, the seller earns more long-term.
What Happens After the SBA Loan Is Paid Off?
Once the SBA loan is fully repaid (typically 10 years), the seller note becomes payable. Common structures:
- Balloon payment: Full balance due at maturity
- Amortizing payments: Monthly payments over 2-5 years
- Negotiated payoff: Parties agree on terms when the time comes
How the 5% Down Structure Works
The Capital Stack
For a $2 million acquisition with 5% buyer cash:
| Source | Amount | Percentage |
|---|---|---|
| Buyer cash equity | $100,000 | 5% |
| Seller note (full standby) | $100,000 | 5% |
| SBA 7(a) loan | $1,800,000 | 90% |
| Total | $2,000,000 | 100% |
Where the Buyer’s 5% Can Come From
The SBA accepts buyer equity from:
- Personal savings
- 401(k) rollover (ROBS)—requires proper structure
- Gifts from family (with gift letter)
- Sale of personal assets
- Investment from partners or investors
- Home equity (if not pledged to SBA)
The following do not qualify as buyer equity: loans that must be repaid (creates additional debt service), pledged assets without liquidation, seller financing (even if structured as “equity”), and credit card advances or personal loans.
Who Qualifies for the 5% Down Structure?
Buyer Requirements
Lenders approve 5% down deals when the buyer:
- Has strong credit (700+ preferred)
- Demonstrates relevant industry experience
- Shows adequate post-close liquidity (6+ months operating expenses)
- Has strong personal financial statement
Business Requirements
The acquisition target must:
- Have strong DSCR (1.25x+ preferred for low-down deals)
- Show stable or growing revenue
- Have diversified customer base
- Operate in a low-to-moderate risk industry
When Lenders Require More Than 5%
Expect higher equity requirements when:
- DSCR is at minimum thresholds (1.15x-1.20x)
- Buyer lacks direct industry experience
- Business has customer concentration
- Industry carries higher risk
- Real estate is not included (weaker collateral)
Negotiating Seller Notes with Sellers
Starting the Conversation
Introduce seller financing early—ideally in your Letter of Intent. Frame it as:
- A signal of seller confidence: “Your willingness to carry a note shows you believe in the business”
- A way to enable the deal: “SBA lenders prefer deals with seller participation”
- Tax advantages: “You may benefit from installment sale treatment”
Key Negotiation Points
Note Amount
5% of purchase price is standard for 5% down structures. Some sellers will do more (10-15%), which provides additional cushion but doesn’t reduce your cash requirement below 5%.
Interest Rate
Common ranges: 0% to 6%. Lower is better for cash flow, but some sellers want reasonable interest.
Interest Accrual
Two options:
- Non-accruing: No interest charged during standby period (buyer-favorable)
- Accruing: Interest accumulates, paid at maturity (seller-favorable)
Sellers often request: higher purchase price (offsetting the financing benefit), personal guarantee on the seller note, interest accrual during standby period, shorter standby period (though lenders may require full term), and security interest in specific assets (subordinate to SBA).
What SBA Lenders Require
Documentation
Lenders require written documentation of the seller note including:
- Promissory note specifying terms
- Subordination agreement to SBA lender
- Full standby language (no payments during SBA loan term)
- Security agreement (subordinate lien position)
Full Standby Requirements
The note must clearly state:
- No principal payments for the life of the SBA loan
- No interest payments for the life of the SBA loan
- Payment cannot be accelerated during SBA loan term
- Note is subordinate to SBA lender in all respects
SBA Approval
The SBA lender must approve the seller note as part of the overall loan package. Non-compliant notes will need to be revised.
Real Deal Examples
Example 1: Manufacturing Business
| Manufacturing — $3.2M Acquisition | |
|---|---|
| Purchase price | $3,200,000 |
| Buyer cash | $160,000 (5%) |
| Seller note (full standby) | $160,000 (5%) |
| SBA loan | $2,880,000 (90%) |
| DSCR | 1.32x |
| Result | Approved and closed in 72 days |
Example 2: Professional Services Firm
| Professional Services — $1.4M Acquisition | |
|---|---|
| Purchase price | $1,400,000 |
| Buyer cash | $70,000 (5%) |
| Seller note (full standby) | $140,000 (10%) |
| SBA loan | $1,190,000 (85%) |
| DSCR | 1.45x |
| Result | Approved—larger seller note provided extra lender comfort |
Example 3: Restaurant Acquisition (Required More Equity)
| Restaurant — $800K Acquisition | |
|---|---|
| Purchase price | $800,000 |
| Initial structure | 5% buyer / 5% seller note |
| Lender requirement | 15% total equity (higher-risk industry) |
| Final structure | 10% buyer / 5% seller note |
| Result | Approved with increased buyer equity |
The July 2025 rule change eliminated 0% down deals but preserved the ability to acquire businesses with just 5% cash when using a seller note on full standby. This structure requires the right seller (willing to wait 10 years for payment), the right deal (strong DSCR, stable business), and the right lender (experienced with seller note structures). When all three align, you can save significant cash while still completing your acquisition.
Frequently Asked Questions
No. As of July 2025, the SBA requires at least 5% of equity injection to come from the buyer or their investors. The remaining 5% can come from a seller note on full standby.
A seller note that requires no payments—principal or interest—for the entire term of the SBA loan (typically 10 years). This is the only type of seller note that counts toward equity injection.
The SBA determined that 0% down acquisitions created excessive risk because buyers had minimal personal investment. The 5% minimum ensures buyers have meaningful “skin in the game.”
Not all lenders offer 5% down structures. Some require 10-15% cash regardless of seller financing. Working with an SBA broker helps identify lenders who embrace the 5% structure.
Yes. Sellers can provide larger notes (10-20% is common), but only 5% counts toward reducing your cash requirement. The additional seller financing can improve deal terms and DSCR.
If the seller requires payments during the SBA loan term, the seller note won’t count toward equity injection. You’ll need to provide the full equity requirement in cash.
