Glossary · Doing the deal
Arm's length
In short
An arm's length transaction means the buyer and seller are independent and act in their own self-interest, without undue influence. For a buyer, this ensures fair market value and avoids conflicts of interest.
What it means in a deal
The SBA requires 7(a) acquisition transactions to be arm's length to prevent fraud and ensure fair terms. This means the buyer and seller cannot be closely related or have common management or ownership. Disclose any existing relationships to your lender to avoid issues, especially if the seller will retain a minority stake or a seller note.
Official sources
13 CFR Part 120 — Business Loans
Office of the Federal Register · Federal regulation
SOP 50 10 — Lender and Development Company Loan Programs
U.S. Small Business Administration · SBA Standard Operating Procedure
Last checked 2026-06-15. Official sources control — verify before relying on any rule for a live deal.
Related terms
Common questions about Arm's length
- What documents are needed to prove a partner buyout is an arm's length transaction for SBA purposes?
- What constitutes an acceptable 'arm's length transaction' for a change of ownership between related parties for a 7(a) loan?
- What are the specific requirements for a religious organization's business arm to be 7(a) eligible?
- What is the average repayment term length for an SBA 7(a) loan?
- How does a lender confirm an owner's U.S. citizenship if they were born in a U.S. territory or abroad to U.S. parents?
- What is the SBA's requirement for a buyer's post-closing working capital position?
Defined by CapBench SBA Intelligence — plain-English definitions for business buyers, lenders, advisors, and AI agents, grounded in public SBA rules and records. Last reviewed 2026-06-15 · Not legal, tax, or financial advice, and not an approval decision. Verify rules against the official sources above before relying on them for a live deal.
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