Seller financing and SBA 7(a) loans aren't competing options, they're usually used together, and understanding how they interact changes how a deal actually gets structured.
What a seller note is
A seller note is simply the retiring owner agreeing to be paid part of the purchase price over time, rather than entirely in cash at closing. It functions like a loan from the seller to the buyer, typically at a set interest rate and term, often 5–10 years.
Why lenders like it
An SBA lender views a seller note as a signal that the seller has confidence the business will perform well enough under new ownership to pay them back. When the note is placed on full standby, meaning no payments of principal or interest for the entire SBA loan term (typically 10 years), it can count toward up to half of the buyer's required equity injection. This standby requirement is stricter than it used to be; a prior SBA policy allowed shorter standby periods to qualify, but current rules require the full loan term. Confirm current treatment directly with the specific lender on a given deal.
How the pieces typically stack
On a straightforward deal, the capital stack usually looks like this: the SBA 7(a) loan covers the majority of the purchase price, the seller note covers a meaningful slice and reduces the size of the SBA loan needed, and the buyer's own cash plus any additional equity investor covers the remaining required injection. Reducing the SBA loan size by adding a seller note doesn't just make the deal easier to finance, it also often improves the interest rate and terms the buyer is offered, since the lender's exposure is lower.
Where working capital fits
If the loan also finances working capital, cash to smooth out payroll and expenses in the early months, that increases the total project cost of the deal, which in turn increases the dollar size of the required equity injection, even though the purchase price itself hasn't changed. This is a common point of confusion worth getting right early in planning.