How to Use Seller Financing to Reduce Your SBA Loan Down Payment

Setting the Scene

Every borrower wants to minimize cash outlay. The SBA requires 10% equity, but what if you could contribute only half that—and still qualify?
That’s where seller financing comes in.

The Power of the Seller Note

A seller note is a loan from the seller to the buyer, representing part of the purchase price. It bridges valuation gaps, builds trust, and can, under the right structure, substitute for cash equity.

But it’s not just about negotiation—it’s about SBA compliance.

Under SBA Standard Operating Procedures, a seller note on full standby (no payments for at least 24 months) can count as part of the buyer’s 10% injection.
That means:

• 5% cash down
• 5% seller standby note
  = fully compliant structure.

How GoSBA Loans Designs the Hybrid Stack

In recent acquisitions, GoSBA Loans has used seller participation to help buyers close seven-figure transactions with limited liquidity.

Example:
A borrower purchasing a $2.5M HVAC business contributed $125K in cash (5%), with the seller holding a $125K note on full standby.
The structure met SBA requirements, preserved working capital, and improved DSCR—because less debt was needed for the purchase.

Why Lenders Like It

Seller notes reduce risk. They prove the seller believes in the business’s future performance and help ensure a smooth transition.
For lenders, that’s a safety net. A seller who remains engaged during the first year lowers the odds of operational disruption.

Structuring Pitfalls to Avoid

1. Payments Too Early: Any principal or interest before 24 months disqualifies the note as equity.
2. Unclear Subordination: The note must be formally subordinated to the SBA loan.
3. Inflated Valuation: Seller financing doesn’t justify overpaying for goodwill.
4. No Documentation: Verbal side agreements risk SBA noncompliance.

A Seller’s Perspective

Many sellers initially resist standby notes, preferring all cash. GoSBA Loans educates both sides—showing that partial standby structures actually increase deal certainty. A 90-day closing with financing beats a 6-month negotiation that falls apart.

The Takeaway

Seller financing isn’t a last resort; it’s a sophisticated structuring tool that aligns interests between buyer, seller, and lender.
Handled correctly, it turns limited capital into leverage—and smart borrowers into new owners.