Glossary · Doing the deal
Arm's-Length Transaction
In short
A transaction where both buyer and seller act independently and in their own self-interest, without any pre-existing relationship or undue influence. This ensures fair market terms.
What it means in a deal
SBA loans mandate that transactions must be conducted at arm's length to ensure fair market value and prevent conflicts of interest. This means the buyer and seller cannot be related parties. If any pre-existing relationship exists, the lender will scrutinize it intensely to confirm the transaction genuinely meets this independent standard, which is critical for loan approval.
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 Transaction
- 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?
- How does the SBA handle a seller's retained ownership in a change-of-ownership transaction?
- What is the average repayment term length for an SBA 7(a) loan?
- How does the SBA handle a seller's retained ownership in a 7(a) change-of-ownership transaction?
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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