Standby Agreement
A standby agreement is a written undertaking by a creditor — usually a seller holding a note — to take no payments and enforce no remedies against the borrower while a senior loan is outstanding. SBA requires it when a seller note counts toward equity injection.
Why Standby Agreement Matters in a Laundromat Sale
Standby is the difference between a seller note that pays and one that waits. Under the current SOP, seller debt used toward the required equity injection must be on full standby for the life of the 7(a) loan, meaning no principal and no interest during that term (Source: SBA SOP 50 10 8). A seller expecting monthly payments who signs a full standby agreement has misunderstood the instrument, and it is too late to renegotiate at the closing table.
Example
A ten-year 7(a) loan funds an acquisition. The $20,000 seller note counting toward injection makes no payments for ten years. A seller who needed that income to fund retirement should have structured the deal differently.
What to Check
- Confirm in writing whether the note is on full standby and for how long.
- Do not plan retirement income around a note that will not pay for ten years.
- Have counsel review the standby agreement before the purchase agreement is signed.
Where This Comes Up
- SBA Equity Injection Rules for a Laundromat Purchase
- Seller Financing for Laundromats: Structures Both Sides Can Live With
- Can a Seller Note Count Toward an SBA Down Payment?
- Laundromat Valuation: How Stores Are Priced and Why
Related Terms
- Seller Note — A seller note is financing provided by the seller
- Equity Injection — Equity injection is the buyer's own money contributed to a financed acquisition
- SBA 7(a) — SBA 7(a) is the U.S. Small Business Administration's primary loan guaranty program
See the full laundromat glossary for all 78 terms.
The Next Step
Sources
- U.S. Small Business Administration, 7(a) Loans and SOP 50 10 8 — https://www.sba.gov/loans/7a-loans/
This page is general information about laundromat transactions, not legal, tax, or investment advice, and not a guarantee of sale price, timing, or financing approval. Verify current rules with your own CPA, attorney, lender, and the relevant state or municipal agency before acting.