Glossary · Doing the deal
Arm's-length lease agreement
In short
A lease negotiated independently between two unrelated parties, ensuring fair market terms without preferential treatment. Buyers care because the SBA requires this if you're leasing property from the seller or a related entity, ensuring the rent is legitimate and market-based.
What it means in a deal
If the seller (or an affiliate) will be your landlord post-acquisition, the SBA mandates an arm's-length lease. This means the rent must be at fair market value, supported by an appraisal or market analysis, and the lease terms cannot be overly favorable to either party. Your lender will scrutinize this.
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 lease agreement
- 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 happens if the business's current lease agreement for its premises is short-term or expiring soon?
- Does a shared commercial lease agreement between two separate businesses trigger affiliation for SBA size standards?
- What are the specific requirements for a religious organization's business arm to be 7(a) eligible?
- Can a buyer contribute a pre-paid lease agreement for the business premises as part of their equity injection?
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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