SBA full standby seller note, allowed to pay off early?

searcher profile

March 29, 2020

by a searcher from Georgetown University - The McDonough School of Business in Bettendorf, IA, USA

I understand the whole full standby as equity provision on an SBA loan but my question has to do with accelerated payoff. If you have extra cash could you use that to pay against the seller note if you are meeting your SBA service with residual available cash?

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commentor profile
Reply by a lender
from University of Missouri in St. Louis, MO, USA
A prepay on a 7A loan should only exist if the amortization was >15 years (i.e. real estate was involved). If that is the case there should be a###-###-#### prepay and then nothing starting in year 4. Sheila is correct on the 20% threshold (usually). However if you are trying to pay the seller note(s) off earlier, get your bank's approval. I have in the past seen a couple banks approve this. It is a gross violation of the SBA rules and they would be putting their guarantee at risk if they allowed.
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Reply by an intermediary
from Indiana University at Bloomington in Carmel, IN, USA
Michael, the answer your question is no, it is not allowed to pay off a seller note that was being used as part of the 10% down payment provision until the SBA note is first paid off.
You can have an additional seller note for amounts above the 10% that can be on an accelerated pay down, within your SBA note guidelines.
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