Find Me Funders
Standby agreement
Also called standby creditor agreement, full standby.
A written agreement in which a creditor agrees to take no payments and pursue no collection for a defined period, used in SBA deals so subordinated debt can count as equity or stay out of debt service.
Drafted with AI assistance. Not yet independently checked. Nobody has verified the claims on this page against a source, so treat the figures and legal points as a starting point rather than as settled, and confirm anything you are about to act on. How we check things.
What it means
The creditor — usually a seller carrying a note, sometimes an owner who lent the business money — signs an agreement in favour of the senior lender. It bars receipt of principal and, on full standby, interest for the standby period. It bars enforcement: no demand, no suit, no collateral action. It typically requires any payment received in breach to be held in trust and turned over.
In SBA acquisition financing the point is precise. A note on full standby for the required period can be counted toward the buyer's equity injection, reducing the cash the buyer must produce at closing. A note that pays currently cannot be counted, and its payment is included in the debt-service coverage calculation as a competing obligation.
Standby and subordination are related but distinct. Subordination sets who ranks where on enforcement and liquidation. Standby stops the junior creditor being paid at all for a period. Most SBA structures use both, sometimes in one document.
Where this one catches people
Sellers agree to standby verbally at the letter-of-intent stage without understanding it means no money at all for years, not merely payment behind the bank. The renegotiation happens at closing, usually with the buyer's deposit already spent and the lender unwilling to flex, because the standby conditions are programme requirements rather than lender preference.
Where you will meet this term
Read next
Standby agreement — common questions
What does standby agreement mean?
A written agreement in which a creditor agrees to take no payments and pursue no collection for a defined period, used in SBA deals so subordinated debt can count as equity or stay out of debt service.
Where does standby agreement catch people out?
Sellers agree to standby verbally at the letter-of-intent stage without understanding it means no money at all for years, not merely payment behind the bank. The renegotiation happens at closing, usually with the buyer's deposit already spent and the lender unwilling to flex, because the standby conditions are programme requirements rather than lender preference.
Is standby agreement the same as an interest rate?
Standby agreement is defined above; if you are comparing it against a rate, check whether the two measures share a time dimension before you put them side by side.
Which products does standby agreement apply to?
SBA Loan.
Is there a worked example of standby agreement?
Not on this entry. Where a term is arithmetic, the arithmetic is shown; this one is not primarily a calculation.
What else should I read alongside standby agreement?
Debt service coverage ratio, SBA 7(a) loan, Seller note, Subordination agreement.
Has this definition been checked?
Not yet. This entry is drafted and live, and the notice at the top says so. Confirm anything you are about to act on.
Is this legal advice?
No. It is a definition. What a clause does in your contract, in your state, is a question for a lawyer licensed where you are.
Can I suggest a term?
Yes — [email protected]. The glossary grows from what people are actually shown in contracts.