Glossary · Doing the deal
Arm's-length terms
In short
This means a transaction or agreement is conducted as if between unrelated, independent parties, ensuring fair market value and no hidden benefits for one side. SBA requires this for many deal elements to prevent conflicts of interest.
What it means in a deal
For an SBA loan, all deal components, like seller notes, real estate leases, or asset purchases, must be on "arm's-length terms." The lender will scrutinize any relationships to ensure no self-dealing or unfair pricing. Be prepared to justify all terms as market-rate.
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 terms
- 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?
- When must a lender obtain an E-Tran modification for changes to a 7(a) loan's terms?
- When is an E-Tran modification required for changes to a 7(a) loan's terms after initial authorization?
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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